Eric Crampton wrote:
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On Thu, 15 Aug 2002, Misha Gambarian wrote:
On the other side, if we allow people to buy more than one share (as ithappens in real corporations) - then I think we can expect that richpeople will buy many shares (as they do in existing real corporations)to get political influence more directly than nowand USA will become oligopoly with poor people having less power thanthey have now.
Ok. Assume 280 million shares (approx. current population). Current GDPis approx. 10 trillion. I have no idea what the current valuation of thestock of wealth in the US is, so let's just assume a lower bound shareprice as being 1/n of the PDV of income flows (GDP).
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.
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The present value ofan infinite income flow of 10 trillion dollars at 5% interest is about 200trillion dollars. Dividing that by the number of shares, we get about$700,000 share value.
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 5, then .
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.)
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The share price can't go much lower than thatbecause, in the limit, somebody could buy all the shares, enslaveeveryone, and get output that would be some fraction of current output(lower since it would be expensive to keep everyone as slaves). But, toget the majority necessary to do that would require an investment of atleast half the market valuation -- $100 trillion. While I think capitalmarkets are fairly efficient, I find it quite implausible that anyonecould raise that kind of money to run a hostile takeover. And, absentthat, just buying another $700K share to get one more vote would beridiculous. Even if all the rich folks in the country liquidated all oftheir resources to buy shares, they still wouldn't have any significantincrease in their control rights. Bill Gates has what, about $62billion? If he sold everything, he could buy about 89,000 shares. Out of280 million. That's still less t
han a tenth of a percent of theshares. Fears (or hopes!) of oligopoly are greatly overstated.
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.
Mikhail Gambarian
Major of Economics, Erasmus University
