Horning in on the JD/DS dialog . . . On Thu, Mar 22, 2012 at 1:50 AM, David Shemano <dshem...@peitzmanweg.com>wrote:
> Jim Devine writes: > > > 1. Most business enterprises would be financed by debt instead of > > equity, which would create an incentive for creative financial > > engineering to characterize equity investments as debt ...< > > "I don't see why this is a problem." > > Why? Why is it a good thing that economic activity be financed by debt > instead of equity? > > >>> (mbs) I'd say it is a potential problem if there is more debt and opaque financial instruments and less plain old stock. > > 2. We would see a significant increase in the independent contractor > > relationship as opposed to the employee relationship.< > > "That seems to be happening anyway, since every time the government > mandates something (for example, as might happen some day, health-care > insurance), corporations get around the mandate by defining their employees > as independent contractors. They do that to avoid unionization, too." > > >>> Obviously the issue is more than otherwise. Less would be better. > Again, why do you want to a rule that create incentives to structure > relationships as independent contractor as opposed to employee? To be > clear, I am not saying that there is an inherent reason to favor one as > opposed to other in the abstract. But in specific circumstances, > transaction costs may make it economically preferable to have an employee > relationship, so if you create rules that discourage employee > relationships, that is a societal loss of wealth because of the increased > transaction costs. > > > 3. We would see a significant reversal in vertical and horizontal > > integration of business enterprises. What are today business > > divisions would become separate entities.< > > "That sounds like a good thing in some ways. Fewer companies would be "too > big to fail." Fewer would have sufficient concentrated capital to have > sufficient political pull to choose federal cabinet officers, make policy > decisions, etc. By the way, money libertarians should favor this, since it > would push businesses to more completely approximate the ML holy grail, > i.e., the perfectly competitive market." > > Again, you are favoring rules that create transaction costs. BTW, while > perhaps some money libertarians place some value on the perfectly > competitive market (can you name one?), that does not include me. I value > the market process and the result of the market process (i.e. voluntary > exchange between individuals with specific property rights). If the result > is a market of just a few competitors as opposed to many, that is fine with > me. I have no preconceived notion of what the result of a market process > will be. > > >>> More fragmentation has pluses and minuses. No call on this one. > > 5. Presumably, there will be a net loss of societal wealth, because > > of an increase in transaction costs .< > > "Why is this? Please explain. BTW, transactions costs can be a good thing, > actually raising social welfare.This is because non-market costs and > benefits are relevant (except in the ML utopia). In the simplest possible > case, a tax on pollution (a Pigovian tax) represents a "transactions cost" > but can prevent companies from trespassing on people's lungs (or reduce > their tendency to predate in this way), which allows the latter to live > longer. The level of market output (GDP) produced by polluting firms may > decline due to this "transactions cost," but the amount of market output of > the pollution-abatement firms would increase. So even market output need > not decline. (BTW, as Pigou pointed using very orthodox economics, this > kind of tax raises economic efficiency. Luckily, he wrote before Ronald > Coase -- and more importantly, his followers -- muddied the mental waters > with the so-called Coase "Theorem.")" > > Your use of "transaction costs" is not my use of "transaction costs." > When I say transaction costs, I mean what Coase discusses in the Nature of > the Firm -- that there are costs inherent in entering into market > transactions, which explains why firms exist that hire employees as opposed > to entering into separate contracts for each need. By creating rules that > discourage employee relationships and instead encouraging "outsourcing," > you increase transaction costs and lose the benefits of employee > relationships, which means a loss of efficiency, which means we have less > wealth than we could have. > > David Shemano >
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