Poor private property rights can kill economies/investments

The issue and theory of "private property" has been analyzed to a level of depth that even I find somewhat tedious, and I don't really have interest at this time in contributing at that level. At a macroscopic level, though, I think it's important to understand what this seemingly "theoretical" concept, this "tool of greedy capitalists" gives people. To that end, I saw a conversation recently amongst people interested in the possibility of investing in land in India:

Yep, the lack of transparency is a big issue.

No one knows who owns the land as the govt. records are not reliable/can be forged. Apartments/houses are a little

better as u get the keys and can rent/occupy. :)

Off late, the Indian land investments have become a typical pyramid scheme with the land changing hands

multiple times within a short period.

Even if it is scrutinized carefully and the deal is closed, you never know who can show up at your doorsteps tomorrow claiming that it’s their property, by creating fake documents and using political influence and sometimes anti-social forces.

Private property - like all contracts - provides *predictability*. A simple and basic result from computational theory is that the accuracy of a computation is limited by the predictability of the processes being computed. When people are making decisions, that is a computation: it's a computation in which we are trying to optimize "future value" over the set of possible decisions (I'm attempting here to use just enough of the language of computational theory to be illustrative, without having to give a primer on the entire field). It follows, then, that for people to make good decisions, they need predictability in the systems within which they are making those decisions. Private property and contracts in general are a wonderful manmade tool for providing that predictability and thus driving good decision-making and an efficient economy and society for all people.

We see here the opposite: without reliable private property conventions/laws, predictability goes out the window, and the ability to make good decisions goes with it. We are left either with people who make bad decisions (e.g. those that are getting taken in by the pyramid schemes mentioned above), or those unwilling to participate at all because they know that they can't make good decisions.

Pragmatically, the cost here is less investment in Indian real estate and thus lower real estate values even for those that are honest and above-board. And who is *really* getting screwed here? It's not the rich: they are the ones abusing the system, sitting on top of the pyramid schemes, using their influence with government to get decisions to go their way. It's the rest of society that is paying: entrepreneurs trying to pull themselves up out of their economic level get rebuffed as their property is taken by influence and fraud, the poor who invest in their property to make it better and lose on that investment, etc.

It's ironic that many people see private property as an instrument of the rich against the poor, when it is fact a *protection* of the poor from the rich (or at least, the dishonest rich).

Greenspan's stock slides further

There is a lot of interesting things to comment on in this article on Greenspan's testimony to Congress in the face of the financial meltdown:

http://www.nytimes.com/2008/10/24/business/economy/24panel.html

Mr. Cox replied, “There’s no question that somewhere in this terrible mess many laws were broken.”

This probably isn't the most important part, but it sits with the theme I've been running with lately: what good are "laws" when the government doesn't actually stop anyone from *breaking* them? We see this problem over and over: the disconnect between "we'll pass a law for X" and "X actually happens." The record is clear: the correlation between passing a law for something and it actually happening is pretty slim. I sometimes think people get confused by social "laws" and scientific/physical "laws", which are entirely different concepts but unfortunately share the same word: physical laws are inviolable (note: there's a much subtler sense in which that isn't entirely true, but that's a subject of some later philosophical note, not a political note), whereas social laws are really just threats: do this, and this other thing will probably happen to you. Like any threat, sometimes it will work and sometimes it won't, and sometimes it will have weird, perverse consequences.

In either case, the point stands: we *passed* a bunch of laws that supposedly should have stopped this from happening, but "many laws were broken." So where were our law enforcers? What good is it to pass laws that don't actually do anything? Isn't this just a cheap facade of "doing something"?

Will we remember this when the inevitable call comes to prevent this from happening in the future by passing even *more* laws? It astounds me that when pouring gasoline on a fire doesn't put the fire out, the majority respond by pouring even *more* gasoline in the fire in the thought that *this* time, it's going to work.

As for Greenspan himself, his fall-from-grace in my eyes is falling as fast as what little net-worth I once had. Of course, that started long before it did for most people: for many, he was the wizard of wall street for much of the last 10 years. For me, his fall from grace started long before that, when he went from being a free-market advocate to holding the reins of one of the more vile tools of central government: central banks. I'm hardly alone in that assessment, and so it doesn't add much for me to repeat those criticisms in depth here (short version: central banks are dishonest at best, since they issue fiat money and as such tax the populace in a hidden way via inflation, and at worst they are a contributor to and even a reason *for* pointless "wars" like the Iraq "war", the "war" on drugs, and the "war" on terrorism. It's part of the machinery of the state of fear and control, and Greenspan should *know* better, he was trained in free markets and decentralization and he's become a turncoat to those ideals).

However, it's worthwhile picking on him for the further capitulations he commits in this testimony:

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

This reminds me of the question illustrating false premises: "Have you stopped beating your wife yet?" Implicit in this exchange is the patently *false* and absurdly so assumption that what Greenspan presided over was "deregulation ideology". Putting aside the inherent sophistry in the term "deregulation" (there is only *regulation*; "deregulation" is a manipulative attempt to convince people that the norm is "regulation", and that anything different is somehow abhorrent and risky), no system with as much central control as the Federal Reserve system can possibly be called "deregulated". I invite you to try minting your own currency and trading in it to see just how "deregulated" the issue of currency in this country is. The fed owns a monopoly on the production of currency, and it prints more whenever it feels like doing so. The private equivalent would be buying stock in a company and then having them print more stock willy-nilly, without compensating you for your now devalued stock. It would never fly in the private sector, which Greenspan pays lip-service to as a "free marketeer", but he's perfectly happy to pull the puppet strings of a deceptive monopoly.

What exactly is the "flaw" that Greenspan has now had his epiphany about?

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

What bothers me about this is now no longer does Greenspan not stick with the principles that formed his origin, he doesn't even *understand* them any longer.

Free-market theory does not say that institutions in a free market *will regulate themselves*. Any 5th grader can see the flaw in that: institutions are composed of people, and people will in the aggregate do what is in their self-interest (with some asterisks that aren't important in this screed). Of *course* institutions need regulation. Even the hardiest anti-free marketeer wants the majority of its businesses to be private, for the benefits of competition and consumer choice on the quality of those businesses has been displayed over and over (I hear no call, say, for the government to take over the car manufacturing business).

What free-market theory properly applied to the problem of regulation says is not that businesses will be self-regulating, but rather that *regulation itself is a business*, and thus like other businesses, the "regulation industry" will be better as a private industry because of the benefits of competition and consumer choice.

Of course we need regulation of our businesses, but we need a private industry in "regulation". Government would not be good at making cars because forced monopolies have no incentive to be efficient, innovative, etc; the same applies to a forced government monopoly on "regulation". Indeed, the failures of our government system to regulate are glaring at us all in the form of zeros in so many bank accounts and foreclosure signs on so many yards. Why do we give a pass to a system that is clearly not working?

Greenspan was intellectually brought up in an environment of free-markets; that he would make this crucial blunder of understanding is at least as unforgivable as his turned-back at the aspects of free-markets that he does understand.

Bloomberg and Term Limits: Wow

New York City Council Votes to Extend Term Limits

After a spirited, emotional and at times raucous debate, the
New York City Council voted, 29 to 22, to extend term limits,
allowing Mayor Michael R. Bloomberg to seek re-election next
year and undoing the result of two voter referendums that had
imposed a limit of two four-year terms.

Read More:
http://www.nytimes.com/?emc=na

I don't know if I have much more to say other than "Wow". This is democracy in action?? The hairs on the back of my neck go up when I see something like this, it reminds me of the kings and tyrants of old changing rules on the fly to suit their personal agendas. What kind of "rule of law" do we have when the rulers get to change the laws??

Like the previous post, I put this one down as another black mark against our current system: this is a failure of government.

The government protects us from crime?

Anyone who knows me knows that one of my most abiding passions is the advocacy of "civil society", which is basically an advocacy for what is at least a very different direction in "government" and at its most is an advocacy for an end to the concept of "nation-state" as it has been practiced over the last couple of centuries. This is not the post to go into the detail of all of that, but part of the intellectual process of that advocacy is an honest analysis of our *current* system as part of the process of comparing alternatives and the current system on even ground.

Detractors of my ideas are dedicated to the notion of finding flaws, of finding ways in which the resulting society would be less than perfect. I'm perfectly ok with that: that's part of a rational process of evaluation. What I find very *irrational* is that those same people are unwilling to honestly assess and see the flaws of the *current* system. My contention isn't that the alternatives I'd like to consider and ultimately advocate are "perfect", just that they are *better* than what we have, in large part because what we have now does not, frankly, set the bar very high.

In that line, I find the following datapoint interesting. Supposedly, one of the "failures" of my advocated systems is that they are "weak" on law and order (because most of my suggestions involve much smaller and less powerful governments than what we currently see in the world). The implication is that the current system is particularly strong on law and order, that the government protects us from criminals and other bad doers.

But does it really do a very good job at that? Or have we just become habituated to its failures to the point where we don't notice them? I've read in many places - and largely been convinced by - the notion that in fact, our police force does not actually *protect* us from criminals at all. For the most part, police don't *stop* crimes; they catch criminals after the fact. Is that really "protecting" us from criminals?

I was privy to a particularly poignant (to me, at least) illustration of this notion the other day, associated with etail giant Ebay: out of 15,000 Ebay employees, a full 3,000, or 20%, work in their anti-fraud department. Think about that for a second: fraud is a *crime*, and those that commit fraud are criminals. Isn't it the government's job to protect us from criminals? Then why does Ebay need to hire 3,000 people to *protect themselves* from criminals? This isn't a handful of security guards, this is an enormous overhead on a company. There's basically *no* expectation that the government is going to help prevent this fraud. The police force have basically just said "you're on your own".

The list of failures of the current form of government (and I'll comment mostly on American government since that's what I know best, but the American system isn't different enough from other major western countries - and many eastern countries are worse - to really distinguish. My comment, IOW, are not limited to America) is something that I want to capture here over time, and this sure seems like an interesting place to start.