U.S. Regulation Destroying Market Efficiency December 21, 2006Posted by federalist in Finance, Government Regulation.
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Market efficiency depends on the ability to freely trade secure interest in Assets (i.e., goods, services, and the corporations that produce them). Indeed, markets are enabled by two characteristics: Security and Liquidity. Security is the ability to register and retain ownership of an Asset; an asset is Secure if it is resistant to theft or destruction by others. Liquidity is the ability to exchange an asset for another of equal value: The owner of a Liquid Asset does not have to pay a significant fee to sell an Asset for its full value.
Without Security and Liquidity the gears of capitalism wear down and can grind to a halt. Conversely, enhancing Security and Liquidity can result in as much economic production and progress as the development of Assets themselves, since without the ability to Secure and Liquidate Assets there is little incentive to produce them in the first place.
Capital market regulation in recent years has begun to cannibalize Liquidity in an attempt to enhance Security. Michael Malone explains today in the WSJ:
In the zeal to punish the excesses of the dot.com boom, the federal government, with the tacit approval of the electorate, sought to not only punish the small number of real evildoers but also build the perfect universal plugs for all of the perceived holes in existing business practices.
The result was Sarbanes-Oxley, Regulation FD and stock option valuation — three great lessons in the law of unintended consequences. Let’s do our own accounting: Thanks to this troika, fewer new companies are going public; economic power is being concentrated in the hands of fewer companies; competition is reduced; new wealth is less widely distributed; the rich are getting richer; fewer talented people want to join entrepreneurial ventures; and corporate boards are getting stupider and more paranoid. And, please note, one of the crucial triggers for economic booms — a burst of young tech company IPOs — has now largely evaporated.
Just curious, but is this really what federal regulators, Congress and shareholder rights activists had in mind?
The Committee on Capital Markets Regulation offers a good set of analyses and recommendations for enhancing our capital markets. They suggest that we can measure the competitiveness of a capital market with figures like the “listing premium,” which is the increase in stock price created by listing a stock in one market versus another, and which would be based on the enhanced regulatory assurances to investors minus the increased costs of regulatory compliance. Indeed, the listing premium of U.S. stock markets has collapsed recently, and there is evidence that it’s not just because foreign markets are getting more competitive.
Defer Your Social Security Benefits December 14, 2006Posted by federalist in Finance.
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Assuming you enjoy at least average health and life expectancy, the best way to decide when to take social security benefits is to price them in terms of annuities. Scott Burns walks us through an example that shows it’s generally worth deferring benefits if you can afford to.
Prescription Drug Regulation Infringes On Citizens’ Right to Life December 9, 2006Posted by federalist in Government Regulation, Healthcare.
Does it make any sense to respect the liberty of citizens to strap waxed boards to their feet and slide down snowy slopes with trees whizzing by for the thrill of it (I am not making this up), yet deny the dying access to potentially life saving drugs that have been proven safe?
That’s from Randy Barnett’s excellent discussion today of federal courts’ disappointing tendency to uphold the government’s right to deny pharmaceutical technology to Americans. Even when said technology has passed FDA Phase I trials. Even when said Americans are terminally ill.
Federal government has certainly overstepped its bounds by using its authority over Interstate Commerce to infringe on our fundamental rights to life and the pursuit of happiness, in this case through the informed consumption of pharmeceuticals.
In Abigail Alliance v. von Eschenbach, a three judge panel of the D.C. Circuit Court of Appeals ruled that, when a drug passed Phase I trials establishing its safety, a terminally ill patient has a right to try the drug before its efficacy is established, provided the patient has no other FDA-approved drug available for treatment. However, two weeks ago the circuit granted the government’s motion for an en banc rehearing before all the members of the court.
At stake is the right to life. Although the parties are pleading the Due Process Clause of the Fifth Amendment, their claim also finds textual support in the original meaning of the judicially neglected Ninth Amendment, which reads: “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.”
The Ninth Amendment’s author, James Madison, explained to the first Congress that it was added to guard against the implication “that those rights which were not singled out, were intended to be assigned into the hands of the general government, and were consequently insecure.”
Barnett later contrasts the stiff regulation of pharmaceuticals with the government’s liberal zeal in guarding the “right” to perform partial-birth abortions, simply because there is always to be found an expert who claims this widely-offensive procedure might be necessary to save the life of a woman. Apparently the right to life is less expendable when there are political points to score.
NASA Boldly Goes Nowhere December 5, 2006Posted by federalist in Energy, Government Spending.
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There’s something inspiring in the bureaucratic zeal of NASA’s bid to rejuvinate itself by proclaiming a new lunar project. I imagine I would feel similar emotions watching a former Olympic medalist, now senile and wheelchair-bound, declaring that he will not only walk again but that he will set a new record. Part of me would swell up in pride at this manifestation of the indefatigable human spirit, and part of me would want to “put him to sleep” to end the madness. With tens of billions of our tax dollars on the line, the latter inclination definitely dominates.
We can’t blame them for trying. After all, there are plenty of bureaucrats, scientists, and government contractors milking our national pride at having stayed in the space race without falling apart like the Soviet Union finally did. NASA can claim it helped to win the Cold War. But fifteen years on, American taxpayers have become nothing more than reluctant enablers of a psychotic, bureaucratic struggle for life.
A great technological challenge can be a tremendous force for economic development, technological progress, and national unity. But what are we doing now? Every so often the President or some Agency chief floats the idea of getting a man to Mars and back, or establishing a permanent lunar station. These are gargantuan projects that would require hundreds of billions of dollars in consistent commitments, and returns that are ambiguous at best. No reasonable person looks at the opportunity costs of such public expenditures and thinks they constitute a realistic vision.
Certainly not now, when there is so much fantastic science to be done on the ground. Certainly not when near-earth space has been fully commercialized. And certainly not when the cost of energy — perhaps the biggest cost in orbiting the materiel needed to send manned expeditions out of low earth orbit — is actually climbing.
NASA, like many federal entities, is an overfunded agency with an obsolete mission and no real vision. There will come a day when we have developed an energy source so cheap that it will be reasonable to push manned space exploration back to the moon and beyond. Until then, NASA’s latest delusional stirrings make it clear that it is time to put this agency to sleep.
God’s Debris December 1, 2006Posted by federalist in Uncategorized.
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Scott Adams published an eBook called God’s Debris. Most of it is a hackneyed treatment of existential problems, but it did contain at few gems. One is this interesting logical argument that if an omnipotent being did exist the only action he would ever take would involve the creation of something out of his control:
I can conceive of only one challenge for an omnipotent being—the challenge of destroying himself. [H]e will know the future of his own existence under normal conditions. But would his omnipotence include knowing what happens after he loses his omnipotence, or would his knowledge of the future end at that point? A God who knew the answer to that question would indeed know everything and have everything. For that reason he would be unmotivated to do anything or create anything. There would be no purpose to act in any way whatsoever. But a God who had one nagging question—what happens if I cease to exist?—might be motivated to find the answer in order to complete his knowledge. And having no fear and no reason to continue existing, he might try it.
And then there is this practical argument that typical human belief is substantially more tenuous than it often purports:
[P]eople say they believe in God, but few genuinely believe. If people believed in God, they would live every minute of their lives in support of that belief. Rich people would give their wealth to the needy. Everyone would be frantic to determine which religion was the true one. No one could be comfortable in the thought that they might have picked the wrong religion and blundered into eternal damnation, or bad reincarnation, or some other unthinkable consequence. People would dedicate their lives to converting others to their religions. A belief in God would demand one hundred percent obsessive devotion, influencing every waking moment of this brief life on earth. But your four billion so-called believers do not live their lives in that fashion, except for a few. The majority believe in the usefulness of their beliefs—an earthly and practical utility—but they do not believe in the underlying reality.