Eric Crampton wrote:
[EMAIL PROTECTED]">Here you assume that all GDP income is distributed as dividents - doesn't look probable. If people assume that their normal income is dividents this still doesn't work, because of income inequality.On Thu, 15 Aug 2002, Misha Gambarian wrote:On the other side, if we allow people to buy more than one share (as it
happens in real corporations) - then I think we can expect that rich
people will buy many shares (as they do in existing real corporations)
to get political influence more directly than now
and USA will become oligopoly with poor people having less power than
they have now.
Ok. Assume 280 million shares (approx. current population). Current GDP
is approx. 10 trillion. I have no idea what the current valuation of the
stock of wealth in the US is, so let's just assume a lower bound share
price as being 1/n of the PDV of income flows (GDP).
[EMAIL PROTECTED]">If we assume 5% interest on deposits, then $700,000 represents income of $35,000/year - pretty good for not very rich USA citizen. I think with this share price we will have huge emigration from USA to, for example, Bahamas. I think share price will absolutely never be so high - I think we can speak about 50-100,000 as top estimation. If price is 50000, then .The present value of
an infinite income flow of 10 trillion dollars at 5% interest is about 200
trillion dollars. Dividing that by the number of shares, we get about
$700,000 share value.
Of course, You have a point - if USA 'Costs' 10 trillion, then 1/280million part of USA should cost $700,000. But I doubt that it will work this way. We probably have no dividents, market isn't very liquid and so on.
For example, in Russian Voucher program it was expected that Voucher (for which was sold very substantial part of Russian industrial property would cost about $10,000 - but actually they cost about $10.
There is two more questions.
First, what happens with people who sell their shares.
a) They can be effectively expelled from USA. It will probbaly lead to USA without underclass, with much less crime and slightly higher cost of living. Doesn't look very probable, through. (INS and border quard look uncapable to achieve this).
b) They will be expelled, but unefficiently (more or less like mexican illegal immigrants now). It will lead to larger underclass than now without rights, probably more crime.
c) They can just lose their voting rights, but still have right to work and live in USA. In this case I expect price of share to be very small, probably less than $10,000 - and in this case Gates can buy 6,000,000 votes and more or less make USA presidents (No president will be able to ignore him). I this case we will come to oligarchy pretty quickly.
Second question, what will happen if somebody sells his share and then dies? Or just dies ? does his share dissapear? It doesn't look just if somebody bought share, come to live in USA, and then was suddenly expelled when previous owner died. On the other side, if shares stay, there becomes constant supply of shares from old persons, and we cannot expect shares price to be high. (people will spend retirement in Mexico instead of Florida, in cheaper coutry and having substantially more money.)
[EMAIL PROTECTED]">As I tried to argue above, we can expect share price to be much lower than $700,000 (at the least at the start), and possibility of oligopoly can be much higher that you think.The share price can't go much lower than that
because, in the limit, somebody could buy all the shares, enslave
everyone, and get output that would be some fraction of current output
(lower since it would be expensive to keep everyone as slaves). But, to
get the majority necessary to do that would require an investment of at
least half the market valuation -- $100 trillion. While I think capital
markets are fairly efficient, I find it quite implausible that anyone
could raise that kind of money to run a hostile takeover. And, absent
that, just buying another $700K share to get one more vote would be
ridiculous. Even if all the rich folks in the country liquidated all of
their resources to buy shares, they still wouldn't have any significant
increase in their control rights. Bill Gates has what, about $62
billion? If he sold everything, he could buy about 89,000 shares. Out of
280 million. That's still less t han a tenth of a percent of the
shares. Fears (or hopes!) of oligopoly are greatly overstated.
Mikhail Gambarian
Major of Economics, Erasmus University
