Year: 2019

Advice for Marco Rubio

I saw your opinion/commentary article published in the Wall Street Journal 6/5/2019. It properly brought to light that investors should not trust accounting statements from Chinese businesses. Your solution to this problem, calling for more government regulation is foolish.

A free market will less regulations, where “let the buyer beware” is more likely to have long term benefits, then establishing regulations attempting to cure yesterday and today’s problems.

Federal regulations are not without costs, Costs that most often accrue to businesses who have no evil intent. These costs then get passed on to all investors, even those who have no interest in Chinese investments. 

The fact that the SEC could not discover a multi-million ponzi scheme by Bernie Madoff that went on for years demonstrates just one example where regulations accomplished little, and provided the moral hazard that investors assumed the government was protecting them.  Your proposal will only increase the demand by the SEC for more federal budget, and more bureaucracy.

We have laws in place to punish wrong doers. Advocating more regulations to try to prevent fraud is an example of shutting the barn door after the horse has bolted.

Reparations

If you are unhappy with where you got your start in life, then you must take it up with your parents since they are responsible for bringing you into this world. The sins of your parents are not your sins. Likewise, the injustices suffered by your ancestors give you no right to reparations from anyone other than your parents.

I am thankful for what my parents did for me, and will not seek reparations.

Alternative way to say the same thing.

Anyone suffering from an injustice that occurred before they were born has ethical claims only against their parents. Their parents are the proximate cause for them being alive and therefore are responsible for how they started in life.

In my theory of justice there can be no crimes or aggression against you before you were born. All theories of justice have problems with initial distribution of property. My theory attempts to persuade people to live a peaceful and happy life without envy.

Life is a journey, not a destination. People can have joy and a good life no matter where they start.

A Wealth Tax is not the same as a Property Tax

In this video at: 1:51, Robert Reich, justifies Elizabeth Warren’s proposal for a federal Wealth Tax by claiming it is no different from cities imposing property taxes.

https://www.facebook.com/RBReich/videos/485656445305109/UzpfSTE4MjQwMjI1MTk6MTAyMTEwMDM1NzY0ODUwNjE

Property Tax is designed to pay the specific costs of maintaining a city. Current systems use assessments to determine how the total property tax is distributed to each land owner. The total tax collected, T, is the sum of each property’s assessment, Ai, times the tax rate, R. T = R*sum(Ai). If politicians were honest, the tax rate would be determined by dividing the amount of money needed, T, by the Total Assessment, sum(Ai). If the assessment process is applied uniformly, it does not matter what the assessment is, each person would end up paying the same share of the total.

With a wealth tax, there is no target amount of money that is trying to be collected. Rather it is proposed as a way to reduce wealth inequality. Thus the appraised value of assets will play an important role. The value of an asset depends solely on what others are willing to pay for it. Without a market for a certain class of assets, it is only opinion that can set a value. Technology or changes in tastes can markedly change the value of an asset. The bureaucracy needed to determine the value of each asset subject to a wealth tax will be vast, and the appeal process will be difficult and expensive.

Let Market Decide Land Use Safety

When third parties object, land use issues are decided by those who have the most political power. Emotion or corruption often win the day.

Some predict that environmental disaster will occur, and believe that such predictions should allow the veto of other people’s property rights. Others think economic development should be encouraged, and the benefits outweigh the risks.

A free market solution following a process similar to the following is proposed:

  • The possible worst case scenario from any development should be identified by disinterested third parties.
  • Economic analysis should be used to determine the cost of damages if the worst case happens.
  • A safety factor based on the historical accuracy of damage estimates should be applied to the maximum conceivable damages to quantify the risk exposure.
  • The developers should then have to buy a bond with a value equal or greater than the risk exposure, insuring the ability to indemnify anyone who may be damaged by the project.

If it is highly unlikely that these damages would occur, then the cost of the bond would be low, and the project will be economically feasible. Otherwise the cost of the bond would be so excessive that the project would not be economically feasible.

For example, the market value of all property in Lee County Florida is about $160 billion.  The market value of the lives of people in Lee County can be determined by the amount of life insurance purchased by approximately 750,000 Lee County residents to cover death due to development disasters. For discussion purposes, assume each resident has a million dollar policy, with a total exposure of $750 billion.

If it is possible that a proposed project would make all of Lee County worthless, and kill everyone in the county, then the developers would have to post a bond worth more than $910 billion.

The insurance market with skin in the game would then determine how likely there will be significant damages, and price the cost of the bond accordingly. Those who want the project could make donations toward the cost of the bond to lower the developer’s cost.

Such a plan would not guarantee that the right decision will be made, but alternative politically based decisions provide no guarantee, and provide no indemnification for those who get damaged.

This article was prompted by an article distributed by the Estero Council of Community Leaders as republished on The Masters Website.