What if Regulation was a Finite Resource?

Alternative Title: Conservation of Regulation

Think of the fuels that have provided the energy for human civilization so far – coal, oil, gas. They existed for thousands of years, largely inert. A small part of them (mainly coal) was used by humans for forges and the like. But then we discovered them during the industrial revolution. We put them to good use, but there’s only a limited supply.

What if regulation was the same? There’s only a finite amount available. For most of history, this existed in a largely inert fashion, regulating the atmosphere, evolution, and so on. A small part of it was used by humans to regulate their habits and bowl movements.

But then during the industrial revolution regulation was discovered by socialists and paternalists. They started using it on a massive scale, trying to regulate all of society.

Unfortunately, there’s only a finite amount of regulation available. We’ve been using so much over the last few hundred years that there’s not enough to regulate the climate – hence climate change. It caused a breakdown in virtue when people’s ability to regulate their habits was reduced. It also caused the obesity crisis because we can no longer regulate our bowl movements properly.

Now, leading scientists are warning about an even greater threat: we might be using up so much regulation that the earth’s orbit will cease to be regular. This will have dramatic consequences, ranging from disruptions to the seasons and day-and-night cycle, to the earth crashing into the sun.

Leading scientists say we need to rapidly reduce our regulation consumption if this is to be avoided. They recommend bring our regulation uses back down to 1990s levels by 2020, and 1900 levels by 2050, and 1700 levels by 2100. Unfortunately, it may already be too late to avoid changing the day-and-night cycle by 1-2 hours, in an effect scientists have dubbed ‘daylight savings time’.

Economists are divided on the best way to respond to the crisis. Some favor a regulation tax, where anyone who implemented or enforced a regulation would have to pay a tax equal to the negative externality they caused. Others suggest a cap-and-trade system, whereby rich countries would be able to buy regulation credits from poor countries. Some politicians prefer a command-and-control approach, where they would pass regulations limiting the use of regulations in industry.

Some progress has been made – most countries have signed up to the Hong Kong Protocol, promising to reduce their regulation levels. The US risks becoming an international pariah by refusing to sign; the Obama administration defended its intransigence:

Hong Kong is, in many ways, unrealistic. Many states do not want to meet their Hong Kong targets. The targets themselves were arbitrary and not based upon political science. For America, complying with those mandates would have a positive economic impact, with increased hiring by small businesses and price decreases for consumers. And when you evaluate all these flaws, most reasonable people will understand that it’s not sound public policy.

But you too can make a difference! There are many easy steps you can take. Maybe turn off your thermostat – doesn’t the earth need that regulation more than your central heating? Write to politicians expressing your concern. Join a local libertarian group.

Remember, preventing the world crashing into the sun is more important than regulating your heartbeat, so ask yourself: do I really need a pace-maker?

Killing suicides so that they may live

Many suicidal people are eventually grateful they didn’t kill themselves. This is sometimes used as an argument in favor of preventing people committing suicide, as Scott recently alluded to. A few years down the line, the argument goes, they’ll be thanking you for pulling them back from the edge, you should feel justified in doing so now. In the past they didn’t want to commit suicide – in the future they’ll be glad they didn’t commit suicide. Their current mental state is a temporary aberration, which we should not hold them accountable for; rather, we should protect their ‘true self’ from it.

There are many examples of similar arguments being used in different contexts.

  • People sometimes stage ‘interventions’ with alcoholics. In the past the alcoholic did not want to drink such excessive quantities. And post-intervention, the ex-alcholic will appreciate their newfound control over their life – they’ll be glad you took away the rum. Their current mental state is a temporary aberration, which we should not hold them accountable for; rather, we should protect their true self from it.
  • Pro-abortion campaigners often claim that, while abortion is terrible, it is sometimes necessary to prevent even worse consequences for the woman. However, pro-life campaigners point out that most women denied abortions are later pleased to have a child, describing the child they would have killed as being the love of their life – as even pro-abortion researchers agree. In the past the woman didn’t plan on having an abortion, and in the future she will be glad her request to have one was denied. Her current mental state is a temporary aberration, which we should not hold her accountable for; rather, we should protect her true self (and her child) from it.
  • Another application is disability. People generally over-estimate how unhappy becoming disabled will make them. Ought we conclude from this that becoming disabled is not as bad as we thought?
  • Or re-education camps. Suppose some enemies of the state, having been perverted by reading Ayn Rand novels, are sent to re-education camps in Siberia for being evil capitalist enemies of the revolution. The camps are very effective: 100% of survivors become devout believers in Neo-Bolshevism. In the past they didn’t want to betray the revolution, and in the future they’ll be glad for the re-education. Their current individualistic mental state is a temporary aberration, which we should not hold them accountable for; rather, we should protect their true proletariat self from it.

I am not a fan of these arguments in general. Part of what constitutes our identity is our beliefs and values. To the extent that these change over time for reasons we would not endorse, to the extent we suffer value drift, [we have to some degree died.](http://lesswrong.com/lw/2zj/value_deathism/) Dying is bad. Perhaps a heroic sacrifice to save something you care about deeply might be worthwhile – but if it is, being made to abandon your value is all the worse.

And if dying if bad, then murder is yet worse. And yet that is what our benevolent busybodies are doing – destroying some small part of their friend, and replacing it with another.

And yet! – this is not nearly so bad in the suicide case. A large part of what makes murder morally wrong is that the victim does not wish to die. In the case of suicide, (at least part of) the victim longs for the embrace of death. By intervening and turning them from suicide, you are killing precisely the part of them that wanted to die. Since it wanted to die, killing it is presumably significantly less immoral. You are basically allowing the suicidal person to commit1 suicide, and then recycling their body for the benefit of a new (or at least slightly different), life-loving person.

So I think that this argument is significantly stronger in the case of suicide than in other cases.

  1. How strange that one ‘has’ an abortion, yet ‘commits’ suicide. Yet when I try to change the language it reads so awkwardly I have to change it back. 

The Future of Socialism is Privatizing the Atmosphere

Scott recently wrote a quite interesting review of John Roemer’s ‘Future for Socialism’. It sounds rather like Schumpeter’s Capitalism, Socialism and Democracy. Funnily enough his vision for socialism also reminds me of Margaret Thatcher’s plan for property-owning democracy. I haven’t read the underling book, so I can’t comment on that, but I can talk about Scott’s writing. More importantly, it provides an excellent excuse to talk about how to save the environment by privatizing the atmosphere.

Central planning could never work, so a socialist economy doesn’t need it. Bosses and managers seem to be doing a good job keeping their firms profitable, so they can all keep their jobs under socialism. Everyone has different skills, so clearly in a truly socialist system they deserve different wages, in fact whatever wage the market will bear.

…you give everyone an equal amount of these stocks. When the corporations make money, they pay them out in the form of stock dividends, which go to the people/stockholders. So every year I get a check in the mail representing my one-three-hundred-millionth-part share of all the profits made by all the corporations in the United States.

We’ll assume that when Scott says ‘Stock Dividend’, he actually means ‘non-stock dividend.’ A stock dividend is when a company gives extra shares to its existing shareholders. This increases the number of shares outstanding, but has no real economic impact. What Scott presumably means is ‘cash dividend’, which is when a company gives cash to all its shareholders.

However, this immediately opens up a problem with the next part.

Roemer proposes a law that stocks cannot be sold for money, only coupons and other stocks. Every citizen is given an equal number of coupons at birth, trades them for stocks later on, and then trades those stocks for other stocks. This allows smart citizens to invest wisely, and allows a sort of “stock market” that sends the correct signals (this business’s stock price is decreasing so maybe they’re doing something wrong) but doesn’t allow stock accumulation by wealthy capitalists.

While I applaud Roemer’s attempt to make use of the valuable signals sent by prices, his plan for preventing people from selling their shares won’t work. If such a policy was instigated, there would probably be strong demand from people for a way to turn their shares into cash. They’d even be willing to accept a discount for the sake of the liquidity cash offers. So some companies would sell all their assets and pay out all the money as one massive liquidation dividend. By announcing this in advance, the company would basically become a way to turn your shares into cash – just swap your other shares for its shares, and then wait for the single massive dividend.

In this system, businesses would raise funds not by selling stock but by seeking loans from banks.

This is where it really gets crazy. Earlier on Scott said that companies would pay out all their profits as dividends. So they can’t issue new equity, and they can’t retain the profits they’ve earned: companies would eventually become 100% debt financed. As soon as they hit the slightest downturn, without a buffer of equity to absorb losses, they would all go bankrupt. And bring the banks down with them. Then you have zero companies, shareholders would envy those who got their money out before the end, and the living would envy the dead.

So perhaps we’ll lighten the requirement that companies have to pay out all their profits. Companies that routinely raise new equity will be in trouble, like tech companies, but lets assume they solve that problem. Utilities also rely on continued equity issuance, so we won’t be able to charge our devises anyway.

More seriously, this would present massive problems for new companies. Or rather, it would prevent there being any new companies. The way you found a company is by investing some money and becoming the owner of a startup – effectively, the startup sells stock to you. Without this, there’s no way to found a new company. So we have a finite number of companies, that occasionally go bankrupt, take each other over, or liquidate themselves. These companies own all the factors of production, leading to a less and less competitive economy, dominated by a couple of few firms, with absolutely no fear of new entrants shaking up their cosy oligopolies.

So there are some problems with Roemer’s ideas. In fairness to Scott, he spots a lot of other problems himself, and he doesn’t even have an economics background. In fairness to Roemer, perhaps Scott misrepresented him. Lets just say that Roemer-as-paraphrased-by-Scott’s plan has some serious disadvantages.

However, it did make me think of an interesting idea I had a while ago. Here is an way of using joint-stock corporations to solve collective action problems.

How to solve the problem of pollution by privatizing the atmosphere.

At the moment, people are incentivized to over-pollute. If my factory releases dangerous emissions, I get much of the benefit, in the form of profits from selling my product (along with my customers, employees, suppliers etc.) I pay only a fraction of the costs though – most of the pollution effects other people. Since I gain much of the benefit, and little of the cost, I tend to pollute too much.

The problem here is one of negative externalities. Equivalently, it the tragedy of the commons. And what is the solution to the tragedy of the commons? Privatization. If one person owns the field, they have the right incentive to preserve its value.

Similarly, we could privatize the atmosphere. People who wanted to use the air (say, by breathing, or burning fuel) would be charged a fee. This would cause them to internalize the external cost, and restore efficiency to the market for pollution.

Of course, this would be rather difficult to administer. How are we going to charge people for breathing? Do people get charged more for having bigger lungs? If people fall behind on their payments, do we cut off their oxygen? Doing so would plausibly count as theft, as currently they enjoy use-rights to the air.

Fortunately, this can easily be solved. Simply give everyone shares in AeroCorp. Because AeroCorp gets most of its money from coal plants and gasoline companies, it pays a dividend each year well in excess of the breathing price. So everyone’s breaths are just netted against the dividend, and they never have to send any money to AeroCorp. Because polluters now have to pay AeroCorp to emit pollutants, they’re less keen to do so, and the negative externality problem is solved.

We could even have a dual share class system. Every human is given a single A-share at birth. These are non-transferable, dilution-protected, and their purpose is to ensure that everyone can afford to breathe. We also have B-shares. These have the same voting and dividend rights as A-shares, but are transferable and dilutable. These are initially auctioned off in a standard IPO. They money raised will be used to fund AeroCorp’s operating expenses. Trading in these shares would ensure price discovery, efficient capital allocation and allow secondary issuance.

There some problems with this system. For example, the firm would be a monopolist, so would tend to charge polluters too high a fee. As such, society would actually end up underpolluting.

Additionally, we need to ensure the two share classes don’t take advantage of one another. There are probably more A-shares than B-shares, but B-shares will be more closely attended to.

One strategy B-shareholders could use would be to have AeroCorp buyback stock. Ordinarily this would be fine – it would raise the value of A-shares. However, in this instance we’re relying on the dividends paid to B-shares to cover the oxygen charge.

A strategy A-shareholders could use would be to insist on new equity issuance, diluting B-shareholders, then paying out the funds raised as a dividend, thereby benefitting themselves.

These two problems could be solved in an attractively symmetrical fashion by giving the B-shares a veto over buybacks and giving the A-shares a veto over new equity issuance.