From: Brian Holtz [brian@holtz.org]
Sent: Friday, October 25, 2002 10:56 PM
To: Franklin Schmidt; LPSM-Discuss@yahoogroups.com
Subject: RE: [LPSM-Discuss] Re: More comparisons between government and
regular corporations

Franklin Schmidt [mailto:fschmidt@digdb.com] wrote:

> Are you saying that they put market pressure by
> threatening to sell their non-voting shares?

Yes. Mutual funds who vote their shares unpopularly would see a 
decline in the price of their (non-voting) shares.

A better alternative to limited liability might be some kind of 
requirement for liability insurance or having some minimum number 
of unlimited partners.

> There are an infinite number of opinions out there 
> on questions like this, and the only way to choose 
> is to compare these 
> opinions with one's personal experience.  

If you think that the only way to gather data relevant to this
topic is through vocational experience, then there are tens of
thousands of economists and other social scientists who would
disagree with you.

> I particularly wouldn't expect younger people
> with insufficient personal experience to arrive at 
> the same conclusions about the rich that I have.

Two fallacies here: argument from authority, and argument from 
anecdotal evidence. Unless you're going to allege some secret 
Majestic-12 / Trilateral Commission conspiracy, you cannot have 
"personal experience" of enough rich people to override the 
contrary conclusions that can be drawn from the available economic 
and sociological evidence.

> I consider anyone who makes
> sociological observations about people that they haven't 
> actually observed to be arrogant and ignorant.

Yes, you cofounded N****g. Well, my housemate and coworker were 
cofounders of Marimba, and my close friends include VPs of Overture, 
NetApp and Kiva.  But I wouldn't need to know any of these people 
firsthand to be able to make informed judgements about the behaviors 
of executives and entrepeneurs in general. How many congressmen do 
you have to know personally before you can speak intelligently 
about the behavior of Congress?  Your arguments from anecdotal 
authority here are undermined by the relevant facts about how 
modern information markets work.  Information markets exist 
precisely to make sure that no one can maintain the sort of 
monopoly on sociological insight that you seem to think you have.

> My opinion about Mafia people is a "suspicion" because I have no direct
> experience with them.

That sure seems like a cop-out.  I never had "direct experience 
with" Hitler, but my opinion about him is more than a "suspicion".

> My opinion about the rich is something I feel sure
> about because they are the worst group of people with 
> whom I have had direct experience.

You cannot have had "direct experience" of "the rich"; you can 
only have had direct experience of a tiny fraction of "the rich". 
I wouldn't doubt a report from you that you've had personal problems 
with all the people you've met who are richer than you. But the 
conclusion I'd draw from that report is not exactly the sociological 
one that you've asserted. :-)

> > It can be intelligently evaluated. Are you saying you have no 
> > way to compare the Americans on the Forbes 400 with, say,
> > antebellum slaveowners or medieval aristocrats?
> 
> It is hard to evaluate people without direct experience.  I 
> suppose if I had to evaluate these people, I would try to find 
> letters that they wrote and other direct information about them.  
> But even once one has good information
> about people, one had to judge this information based on one's 
> personal morality and I believe that morality is relative.

If this is the most intelligent evaluation you can give on
the sort of moral comparison I asked about, then I can't take
seriously your blanket moral statement that "the worst people"
get rich.

> So no scientific assessment is possible.

Strawman. I didn't ask for a "scientific assessment", I asked 
for an "intelligent evaluation".

> > you assume that your judgement of
> > what's good for people is better than the people's own
> > judgement as expressed through actual market behavior.
> 
> Not at all.  I am saying that your definition of 
> economic efficiency determines the mean income, 
> which I hardly care about.  I care about the
> median, which is not necessarily determined by 
> economic efficiency.

But even if your desired goal is a higher median, then economic 
efficiency is still the measure you use to minimize the costs of 
achieving your goal.  I'll ask you again, point-blank: do you agree 
that people's own market behaviors is a better expression of their 
preferences and interests than your personal opinion is?

> Do you have any reference that says that an 
> unlimited-liability capital
> market would not work?

I have at least two data points: before limited-liability capital 
markets, the median standard of living was orders of magnitude less 
than now.  You seem to have zero data points, and no serious economic 
analysis supporting your proposed enormous change to a status quo of 
unprecedented prosperity.

> I was hoping that the Libertarian
> position against government interference would 
> support my anti-limited liability view since limited 
> liability is a form of government interference.

So are taxes, and regulations on externalities (e.g. pollution), etc. 
It's the "Libertarian" party, not the Anarchist party -- though my 
refrain on LPSM is that sometimes it's indeed hard to tell the difference. :-)

> A 0.1% vote by 1000 workers would be total control.  
> As long as workers, together, had enough votes

If workers have that much unanimity, then they can bargain collectively. 
Also, workers are free (and often encouraged) to buy stock of their own.

> I don't know how to argue against your 
> misinterpretation of the phrase
> "having say".

Because your phrase is exceptionally vague, and thus offers essentially 
no support for your subjective class-warfare hyperbole.

> An employee has no direct power over his pay or working
> conditions.

I might as well say that an employer has no "direct power" over the 
hands and feet of the employee.  Both statements utterly fail to properly 
characterize the situation.

> He has some indirect leverage by threatening to 
> quit, but that is hardly "having say".

In any one-time free association, declining to associate is in fact *all* 
the "leverage" that either party ultimately has.  But in an ongoing 
employment relationship, employees almost always have leverage such as 
offering to renegotiate wages, overtime, travel, vacation scheduling, 
shift scheduling, etc. Your blanket "have no say" statement is 
indefensible in any serious analysis of the economics of employment.

> Your employer can make you work 80 hours/week for half 
> your current salary if the alternatives offered by 
> other employers was even worse.

At market equilibrium, all alternatives could only be worse if I were 
already being paid more than is justifiable by my productivity.

> An employer
> has total say over your conditions of employment there.

Vacuous hyperbole, and thus false. My employer would like me to be at 
work as I write this (at 9:10am), but I set my work hours otherwise. 
Thus my employer does not have "total say" over my conditions of 
employment. QED.

> people are not born into a corporation.  But as 
> long as people can freely leave both, the similarity 
> is enough for the analogy to hold.

No, the analogy fails, for the same reason that an easily-escapable 
prison cell is not analogous to a guest cottage.

> employers do have the same arbitrary power over their 
> company that a dictator has over his country, which is 
> the whole point of the analogy.

No, the point you tried to make was that
  employee is to employer as citizen is to dictator.
By changing your analogy to
  company is to employer as country is to dictator
you are admitting that your earlier analogy fails.

> > Under what possible objective criteria would you 
> > ever admit that employees' reasonable demands are 
> > being satisfied?
> 
> This isn't a boolean question satisfied by some magic
> thresh-hold.

In other words, you are unable or unwilling to describe how your 
desired goal state is different from the present.

> What I do know is that the current balance 
> of power overly favors the employer.

I'd say you know no such thing, since the available data indicate 
that the market is in equilibrium. I've cited statistical data 
showing that compensation exactly tracks worker productivity.  
Can you cite any statistical data whatsoever showing that any other 
objective measure of working conditions does not track worker productivity?

> an artificially created great disparity in power (not
> incentives) between 2 parties will result in an oppressive 
> relationship even if the relationship is voluntary.

1. Disparity in wealth, just like disparity in attractiveness, is 
not necessarily "artificially created", and in our society is indeed 
quite natural.

2. The ability to provide or withhold incentives is the relevant form 
of "power" under discussion here.  You abjectly beg the question if by 
"power" you stipulate e.g. the use or threat of physical force.

3. If two parties don't have precisely equal incentives to associate, 
what's to stop you from always (and thus meaninglessly) labeling this 
"oppression"?

> with a great inequality in the population of the sexes, 
> the less populous sex would hold too much power and 
> the relationships (marriages) between the sexes would 
> tend to be oppressive with the less populous sex
> oppressing the more populous one.

My point exactly: attractive women are far less populous than homely 
men, and thus attractive women "oppress" homely men.  QED.

> This is wrong, as explained clearly by Marx in "Wage Labour and Capital"
> (http://www.marxists.org/archive/marx/works/1847/wage-labour/index.htm).
> The cost of labor is determined by supply and demand.

In the short run, yes.  In the long run, it's determined by the 
productivity of labor.  Marx was apparently ignorant of the modern 
economic definitions of short and long run, and didn't think about 
workers and employers responding in the long run to market signals (i.e. prices).  
From section 5.1.2.1. (Social Science / Economics / Microeconomics / Market Theory, 
at http://humanknowledge.net/Thoughts.html#MarketTheory) of my book:

  The short run is the time scale on which 
  there is a fixed scale of production
  and no entry or exit of firms from the market. 
  The long run is the time scale on
  which firms can enter or exit markets and 
  scale production as they choose.

Marx was clearly wrong when he said that "[t]he price of [the laborer's] 
work will therefore be determined by the price of the necessary means 
of subsistence". You admitted as much when you conceded that eliminiation 
of minimum wage laws would not necessarily reduce workers to subsistence wages.

> An unlimited supply of labor would allow the 
> employer to keep all the profit [..]

There's no such thing as an "unlimited supply" of an economic resource.  
Indeed, economics is precisely the science of resource scarcity. When a 
thing (like e.g. the number of times I can use the letter 'e') is truly 
unlimited, then it doesn't even qualify as an economic resource.

Not only is the labor supply not unlimited, but its growth isn't even 
geometric, as Malthus and (presumably) Marx assumed. They were ignorant 
of the now-well-understood "demographic transition", in which technological 
advances slow population growth by making children much more of consumers 
in families than they are producers.

> Isn't a tax incentive coercive?

Taxes are by definition coercive, but tax incentives are less coercive -- 
and more dynamically adaptive -- than rigid regulations.

> I think a flat tax or negative income tax
> is less coercive because the government is
> prevented from interfering with
> the economy through tax incentives.

All things being equal, I agree. But for certain problems that the free 
market does not solve on its own, dynamic incentives are better than the 
alternatives of static regulations and no policy at all:

* For welfare, a negative income tax is better than laws
  controlling rents, minimum wages, etc.
* For pollution, taxing or auctioning emissions is better than
  laws mandating equipment emissions levels, etc.
* For capital concentration, tax incentives to change the
  wage/equity mix of compensation is better than confiscating
  and redistributing wealth.

brian@holtz.org
http://humanknowledge.net