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The Anti-Climax of the Bailout Saga

There was plausible speculation that the auto bailout saga would come to a conclusion this week. Instead, nobody was surprised when the Bush administration decided to follow the path of least resistance and punt. The $17 billion loan provided by the White House is enough to keep GM and Chrysler in business through February, but not much further.

By now we ought to be used to doublespeak from this administration. Apparently, "I believe that good policy is not to dump [Obama] a major catastrophe in his first day in office" means that Bush is okay with dumping a major catastrophe on Obama in his second month in office. "In any scenario that comes forward after this decision-making process, all those stakeholders are going to have to make tough decisions" means that the administration is comfortable forking over taxpayer money without any concessions from the unions or commitments from management.

Since the run-up to the Iraq War, I noticed that you get a much clearer picture of reality by believing the opposite of everything said by a Bush administration official. "Urgent threats" are not urgent and hardly any threat, "vital security measures with responsible oversight that protect the privacy of ordinary Americans" are expensive and useless policies, lacking any meaningful oversight, that violate the privacy of ordinary Americans. And so it goes.

Conservatives were hopeful that a successful long-term bailout plan mimicking bankruptcy restructuring would come from the White House, which would be similar to the deal offered by Senate Republicans and rejected by the unions a few weeks ago. Instead, the Bush administration settled on a band-aid measure that passes the buck to an incoming liberal Obama administration that is likely to be perfectly comfortable letting the unions suck at the national teat with no long-term concessions.

This one last act of spinelessness by the Bush administration is a perfect symbol to remember them by.

Rampant Moldbuggery

I discovered the blog of Mencius Moldbug when Patri linked to this post a few months ago. You should follow that link and also this one, Mencius is well worth your time. He is one of the freshest and most interesting writers on the web, though eccentric even by libertarian standards. His ideas are promising and deserve to be presented without the less palatable garnish of his acerbic writing style.

The most compelling idea in the sprawling Moldbuggian corpus is "neocameralism". Neocameralism is a close relative to Patri's theory of Dynamic Geography in that both are forms of practical market anarchism. Its reasoning is straightforward: If you believe that government should be given incentive to govern well, then modern democracy must be thrown out. Simply trying harder to elect better candidates will not fix the familiar structural problems of democracy, such as plundering special interest groups, ever-expanding bureaucracy, and election contests with the intellectual content of an American Idol finale. However, if you think that security service providers (AKA "governments") form geographic monopolies (500,000 years of human history provides good evidence for this), then the Rothbard/Hoppe/Friedman vision of anarcho-capitalism with a competitive market in security must also be set aside as a pipe dream.

Neocameralism, then, is statist anarchism. It envisions a world filled with small monopoly states run by for-profit corporations. Neocameralism addresses many of the shortcomings of democracy and anarchy. Moldbug defends it well:

To a neocameralist, a state is a business which owns a country. A state should be managed, like any other large business, by dividing logical ownership into negotiable shares, each of which yields a precise fraction of the state's profit. (A well-run state is very profitable.) Each share has one vote, and the shareholders elect a board, which hires and fires managers.

This business's customers are its residents. A profitably-managed neocameralist state will, like any business, serve its customers efficiently and effectively. Misgovernment equals mismanagement.

For example, a neocameralist state will work hard to keep any promise it makes to its residents. Not because some even more powerful authority forces it to, but because it is very pleasant and reassuring to live in a country where the government can be trusted, and it is scary and awful to live in a country where it can't. Since trust once broken takes a long time to rebuild, a state that breaks its own laws has just given its capital a substantial haircut. Its stock is almost certain to go down.

I am provisionally convinced that a neocameralist world is likely to be more libertarian and better-governed than a world run by universal suffrage democracy. For-profit states are likely to follow libertarian economic policies, since those policies tend to create prosperous and interesting places to live. Conversely, socialism is an expensive program that attracts the indigent, not exactly prime clientèle if you are trying to turn a buck. Culturally, I expect a neocameralist world to be a patchwork of diverse burbclaves ranging from a straitlaced, caffeine-free Mormonville to a hedonistic New San Francisco. While not every state will be cosmotarian friendly, each person will have the freedom to choose where to live, presuming they meet the residence requirements of their preferred state. That sounds fair enough to me.

More importantly, my initial impression is that the logic is tight. Neocameralism seems stable and practical, or at least more so than Rothbardian anarcho-capitalism.

There are certainly difficulties with neocameralism. Transitioning to a neocameralist world is the first hurdle that springs to mind. Moldbug never clearly spells out a plausible strategy for getting from here to there. Then there is the minor matter of how shareholders in the government will keep the management under control when management presumably has all the guns. After all, in a democracy corporate shareholders can ask the government to enforce contractual obligations when management shirks its duties. Hopefully you see the problem that occurs with this model when management runs the government. Moldbug offers some technological solutions to this problem that are interesting but unsatisfying.

Still, Moldbug gives me hope that a libertarian future might be practical, which is valuable as the libertarian movement doesn't exactly have a surplus of hope. In a world that has gone through the FDR presidency, I don't see how anyone can cling to the hope that libertarianism might be achieved through a constitutional democracy. I came back from Mises University an anarchist convert, but I have since strayed from the faith due to doubts about its practicality. The arguments for dynamic geography are well-considered, but it abandons the 25% of the world's surface that humanity has historically lived on to sclerotic statism. Also, it is going to entail significant startup costs.

IANAM, (I am not a Moldbuggite), but Mencius, consider me intrigued.

Repeal Day is December 5th

Happy Repeal Day, everybody! Please join me in celebrating individual liberty by tossing back a stiff shot of bourbon or sipping a comely glass of scotch.

First Planets Photographed Outside our Solar System

Three big ones, about 10x the mass of Jupiter, orbiting a star ~130 light years away.

So Long, Schumpeter

Perhaps no destruction would be as creative as that of American automakers with their cancerous union contracts. Over at Carpe Diem, Mark Perry has a telling graph of the labor costs of the big 3 American automakers:

Ordinarily, troubled firms would cut back on labor costs. They can't.

One might think that unions have the incentive to make concessions to keep their host firm in business rather than risk the jobs of their members. However, the potential of a government bailout to feed off of is an infinitely preferable alternative that involves no sacrifice. The automakers will join the ignoble ranks of unionized firms kept alive by tax dollars, incapable of producing goods for which consumers will pay above cost.

The auto industry is frozen in time. New, innovative competitors will be kept out of the market by competition from tax-funded dinosaurs. Car companies have become an expensive, politically connected welfare agency for UAW employees.

With the Democratic Party's pro-union agenda, look for GM-efficiency and Detroit aesthetics coming soon to a corner of the nation near you.

Rent-seeking is a depressing phenomenon to watch in action.

Conquering the Final Frontier

They did it! With the successful launch of the Falcon 1, Space X has become the first company to launch a privately built rocket into Earth orbit.

I eagerly await the founding of an anarcho-capitalist Spacesteading Institute. Someone get Peter Thiel on the phone.

Science fiction is becoming science fact before our eyes. It's an awesome time to be alive.

Ron Paul endorses Chuck Baldwin

Sometimes people forget that the major strength of Bob Barr as a presidential candidate is that he is far less kooky than most libertarian politicians, less kooky than even Ron Paul. While we may get lost in dissecting the candidates' policy positions in search of the best libertarian match, we should periodically pause to remember how big of an asset non-kookiness is.

I am sure this recent action by Paul will remind people how awesome it is to have Bob Barr on our side. This libertarian is happy to have a candidate who hasn't published any race-baiting newsletters (Paul), isn't screaming about roads to Mexico and the New World Order (Baldwin and Paul), and has never advocated removing exercise equipment from prisons as a serious approach to crime control (Badnarik).

Plus, Bob's mustache is made of awesome.

The End of an Era

With Goldman Sachs and Morgan Stanley announcing yesterday that they would become Bank Holding Companies, we can say goodbye to the age of the independent Wall Street Investment Bank. The other players are already gone. Bear Stearns and Merrill Lynch were bought out by FDIC-regulated banks while Lehman Brothers kept its date in bankruptcy court.

The purpose of this most recent move is for these firms to adopt a lower risk and lower return business model. They will now be subject to strict risk-based capital requirements and gain two new regulators - the FDIC and the Federal Reserve. In exchange, they will have access to two stable sources of liquidity - bank deposits and permanent access to the Federal Reserve discount window. Rumor has it that Goldman will buy a retail bank soon and that Morgan is planning to sell out to Wachovia.

Neither firm likely needs the new source of funds so much as they need to convince their current lenders that they are not going anywhere. Lender perception is now more important than any tangible asset. A canceled credit line or a margin call is a kiss of death. That said, the shareholders of the new bank holding companies will appreciate having alternative funding sources rather than being held hostage to the whims of their lenders.

Wall Street's reorganization is a triumph of deregulation. Ten years ago, Glass-Steagall was in effect and it was illegal for the same company to conduct deposit-taking and investment banking activities. Since 1999, financial firms are allowed to diversify over several lines of business, making them less likely to fail. Deregulation has also increased the amount of private capital available to the financial industry in times of crisis by expanding the pool of potential buyers for troubled firms. Were the regulation still in effect, Morgan, Merrill, Bear, and likely Goldman would either join Lehman in bankruptcy court or wind up on the balance sheet of the US treasury. That particular piece of deregulation has increased the overall stability of the US financial system.

The only thing that concerns me about the trend of Investment Banks turning into diversified financial companies is that it might be an overreaction to the current crisis. They may be reducing their risk and return below a long-term optimum in response to extraordinary times, and the cost of going back will not be negligible.

Oh well, that's a problem for the shareholders to sort out. Right now they probably value company survival over return on investment.

I plan to get a debit card at the first Goldman Bank to open in my area. It would be pretty cool to have as a symbol of the new era.

Caveat: I'm not an expert, just an interested amateur. My view of the subject is colored by working for a firm that was hired to sell several troubled mortgage companies between 3rd quarter 2006 and 1st quarter 2008. The Wall Street firms currently in trouble are much more complicated than any mono-line mortgage issuer and my experience might be falsely generalized. Also, banking regulation is hopelessly complex and it's possible that I have mispoken somewhere.