Warren Buffett on what went wrong with Lehman and Merrill (2003)
forbes.com
forbes.com
It's not the technology, but rather a failed system of incentives that leaves mis-managed firms to die from exposure.
what incentive does a cop have to stop crime when he makes more money and is safer busting stop sign violators? what incentive does an elected official have to work for the good of his constituents when he will be out of office soon? what incentive do parents have to raise decent children when retirement is socialized and the government baby sits for them? what incentive do businesses have to compete fairly if the government offers easy outs and chances at monopolization (telcos).
Surely you're not suggesting longer terms.
Congress critters tend to stay in office a very long time.
The governing business should operate like the cereal business, or the software business, or the anything-but-government business: people pay a reasonable price for a particular service, and get what they pay for. You'll notice that a company like Google is somehow able to make its users happy, even though it doesn't have monopoly power on multiple industries or the ability to print arbitrary amounts of dollars, and yet the government is unprofitable even with these advantages.
Just tell me how you'd convince Larry and Sergei (and their shareholders) to turn Google into a democracy, and I'll concede that perhaps democracy is a sensible system after all.
Think about the highway system. Say that people paid a certain amount for the privilege of driving on the roads. But then what about the folks whose land was taken for the highway? How about the ones who now have to put up with the noise of thousands of automobiles? And then what about positive externalities - the business owners who make more money because cars can get to their businesses, but don't pay to use the roads themselves?
Or think about the legal system, including consumer protection agencies. What happens if someone contracts for a service, and then never pays up? Maybe enforcement of service contracts should itself be a service. But then what if that service itself breaches its agreement? Who do you go to?
Democracy's a pretty shitty solution, but it exists for a reason. All the alternatives seem to be worse.
Interesting. Most of the big expenses my government pays seem to involve some sort annuity scheme in which everyone is required to participate in the same retirement plan, even though the plan doesn't have nearly enough capital to handle its obligations. They also do health care, and they blow stuff up. It seems to me that most of the externality-based arguments can be taken care of with insurance and derivatives markets.
For example, if we decide it would be a Good Policy to make everyone eat an apple a day, because it would increase life expectancies by one year on average, we could just mandate that they all do it. But we could also make a bet on the average life expectancy in the US, pay people to eat apples, and pocket the cost differential. I'm not sure the transaction costs would be lower, but 1) the incentive to lower costs would be there -- no bureaucrat DMV ever got a seven-figure bonus for cutting costs, but plenty of bankers, consultants, and private equity executives have, and 2) it would have lower exit costs than our current democratic experiment.
But then what if that service itself breaches its agreement? Who do you go to?
David Friedman claims that they'd form little federations predicated on adhering to certain standards. If one company didn't follow through, it would have to renegotiate separate treaties with every other enforcement agency (and would lose lots of goodwill).
Democracy's a pretty shitty solution, but it exists for a reason. All the alternatives seem to be worse.
Yes, yes, and no. It would be pretty weird for Democracy to be exactly the wrong way to run almost every human institution, even though almost every human institution is run better than the average democracy.
Don't compare government to business. It's apples to oranges. Government is designed with checks and balances - which are by definition inefficient - because bickering about the same thing for six years is better than making the wrong decision - we've all ceded the control of our lives to this thing, I want them to take all the time they need.
Be careful not use the current American experience with government as an excuse to throw the baby out with the bathwater.
This sounds like a tautology. Democracy avoids centralizing power, which is good because that's why we have a democracy. Not even circular logic; I feel like I just walked along a semantic Möbius Strip.
Don't compare government to business. It's apples to oranges. Government is designed with checks and balances - which are by definition inefficient - because bickering about the same thing for six years is better than making the wrong decision - we've all ceded the control of our lives to this thing, I want them to take all the time they need.
Again, circular logic. We must have an inefficient monopolistic provider of oil|cars|operating systems|law enforcement and defense and pensions and healthcare and education and mail delivery and a host of other unrelated services|hula-hoops because, when we are betting everything on a single provider, it's better for that single provider to muddle around than to do something bad.
I think you just made the argument for splitting the government up, not for keeping it running the same way.
Be careful not use the current American experience with government as an excuse to throw the baby out with the bathwater.
Our crazy populists haven't killed very many people at all, and the rise in crime (and the money paid for crime-avoidance) is much lower in this country than in others that democratized even harder and faster. So it would be unfairly generous to your position if I used the US as a single example -- think of it as a way to handicap my arguments so things will stay fair.
don't get the connection between children and retirement?
Just?! Engineering incentives is the fundamental problem facing humanity. Capitalism is about not money, but aligning the motivations of large groups of people.
Can we improve on capitalism? For sure. But don't underestimate the problem you're taking on.
edit: if you downmod me, please explain why. this is a great opportunity to learn.
Prescient.