no third solution

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Category Archives: ponderings

Taxation is Not Coercive? But Property Is. Or Isn’t. Is it?

May 15th, 2007

None of it is my doing, but the Cato piece I referenced earlier in the week has stirred up quite the discussion. The vanguards of liberty seem to be in very short supply these days, and this is terribly unfortunate for a number of reasons – not the least of which is the fact that most of the writers are distinguished scholars in one field or another. Consider Richard Epstein’s response, where, towards the end, he addresses the libertarian idea that taxation is akin to theft:

But [Libertarians] typically overstate their categorical case against taxation, because they refuse to look at the benefit side of the equation…

That is to suggest there is a benefit side of the equation, and since all tastes and preferences are subjective, we can conclude that anyone objecting to the tax or the program it funds clearly does not recognize a benefit. And further:

Therefore, if a tax is designed to provide some public good, and we can say all persons who pay some tax receive a benefit that they value in excess of the amount of the tax, then the arrangement is a form of justified coercion…

Oh, where to start? It is terribly presumptuous of Epstein to assume that everyone who pays receives a benefit, however small – but it’s fucking flat out wrong to conclude that the benefit exceeds the amount of the tax in all (or many, or most) instances.

Starbucks does not effect violence in order to persuade me to buy coffee, Chrysler did not threaten to imprison me if I didn’t lease a Jeep, and NewBalance did not garnish my wages in order to provide me with new running shoes. On the market, people pay for things voluntarily when they determine the benefit exceeds the cost. If all persons received a benefit in excess of the cost, no coercion would be necessary – this is elementary public finance, and indeed the Pareto improvement would be to remove the coercive element entirely. The idea behind public finance is that public goods are to be provided by tax revenues because people otherwise either don’t want them, or don’t know they want them – neither of which necessarily justifies the taxation in question – but this is not a discussion of public finance.

Buridan’s Ass does not “prefer” one bale of hay to the other – he merely prefers “some” hay to death. Similarly, we do not prefer certain degrees of tyranny, we merely prefer some semblance of freedom to certain death. All market-decisions are predicated upon a choice between alternatives which includes abstention or deferral. Government provides no such choice, and where choice is absent, we can’t even begin to hypothesize as to where these things fall on individuals’ value scales, and therefore we cannot conclude with any certainty that the benefits exceed the costs in even a single instance, that is, unless Epstein has found a way to definitively bridge the interpersonal utility comparison gap. That would be a nice trick. (For more on IUC, see this thread, or this one – particularly the “related posts” link preceding the comments section.)

Finally, he casually tosses out Proudhon’s (probably misunderstood) slogan, “La propriété, c’est la vol!”

Proudhon would ask this question… How dare you make this property, which has always been common, private? And the answer, in all cases, is: because it is to the long-term advantage of all.

In all cases, if it is not previously owned, then it cannot be stolen – I wish I could come up with a more eloquent way to describe this than “finders keepers,” but I can’t. Since all property originally was in this murky state, the idea that private property cannot emerge from first use, prior appropriation, or discovery, contradicts any notion of ownership; no property can ever be freely and individually owned, and all “property” succumbs to the murky depths of the “commons,” none of it is ownable, and all claims to it are simultaneously valid and fraudulent. Either the commons are held by a group of people who would voluntarily relinquish their claim for a certain price, or they are not held or used by anyone, in which circumstance no objection to appropriation can be sensibly put forth. In the first instance, it just so happens that the property is loosely and informally owned, and to acquire it from them and their use, you would need to make an offer sufficient enough for them to recognize and formalize their collective ownership.

The conclusion, that privatization is to everyone’s long-term advantage is not quite intuitive, but I believe it is more or less accurate. That said, it is a blade that cuts both ways – and because of this, I’m not quite sure what the hell the conclusion of his essay has to do with the rest of it. Of course we need private property – we more than “need it,” it’s fundamental to our existence; but privately held property makes possible concepts like “theft,” which undoubtedly fall under the mantle of “coercion.” It is because we recognize rights – property, ownership, life, &c., that we understand what is or is not coercion – and I’ll reiterate: the exercise or defense of one’s rights is not coercive, and to conflate the two concepts is a serious error in reason: Whereas rights can clearly be exercised without coercion – it’s a stretch, but we can imagine a world where nobody lies, cheats, or steals – and in such a world, the concept of defense is null, coercion cannot occur without a recognition of rights.

Cato on Coercion

May 11th, 2007

I have the RSS feed for Cato-Unbound on my homepage, and I occasionally read it, but the authors are often too long-winded for me to bear singularly – putting 3 or 4 reaction essays together makes it a chore. That said, there’s been a discussion there this week about the concept of coercion, as introduced by Daniel Klein. I’m reading Ed Glaeser’s response, Coercive Regulation and the Balance of Freedom. At first glance, it didn’t seem all that bad, just a little unsettling. Then I read it again. There are several instances in the first two or three paragraphs where he demonstrates a fundamental misunderstanding of the concept, which I think Klein introduced well-enough.

Take the following examples, three:

I am also in favor of limits on contracts that encourage highly anti-social activities, like murder. Support for the freedom to contract is a good maxim, but it cannot be an axiom.

The “contract” to murder someone is an equivocation – it simply is not a contract. For starters, a hit always involves an unknowing third party, which cannot be bound by law or reason to adhere to the terms of said contract. Furthermore, the reason the State doesn’t enforce this sort of “contract” is not because it’s anti-social, but because such a contract necessarily requires an initiation of force and the violation of another’s rights. It is not a contract, because it does not have a legal objective, and as such it is prima facie void.

Stating that all coercion isn’t necessarily bad, Glaeser maintains that “The ability of creditors to collect depends on the power of the state to coerce borrowers.” But here again he is mistaken.  All this argument says is that you want the State to help you enforce contracts when you’re not physically capable of doing so on your own.  Anyone who has defaulted on credit (i.e., theft) or otherwise failed to perform an obligation (i.e., fraud, &c)  has initiated force by violating his contract – anything which the contract empowers the creditor to do in this event is a reaction.  It is emphatically not coercive to resist coercion.

Last, but not unimportantly: “If we think that state-sponsored redistribution is desirable, then we are willing to accept more coercion to help the less fortunate.” This “we” is rubbish; there is no collective, unanimous “we” – and it’s the plight of the naysayers that concerns me. All that can be shown by “acceptance” is that some people are willing to use the state to take things they didn’t earn. Other people may or may not be OK with that. If you don’t have a choice, then it clearly is coercion because it doesn’t matter whether you accept it or not. Such is all state-sponsored redistribution.

I see no point in continuing to re-read this essay – Glaeser is clearly out of his element.

Insurable Interests?

May 11th, 2007

Does anyone with experience in the insurance industry have any insight on the principle of “insurable interest”? It came up in class the other night, and a number of the other students didn’t agree with the idea – the professor didn’t attempt to explain why it’s a general requirement, only that it is a general requirement for an insurance contract.

The conundrum is highlighted by a specific example: Joe has a life insurance policy that will pay $1M in the event of his premature demise. He has designated his girlfriend as the sole beneficiary of the policy. However, his girlfriend does not have any insurable interest in Joe – the policy may be void. Now, Joe may have designated a charitable organization as the beneficiary, without any problems. The charitable donation certainly has no insurable interest in Joe – if it has any interest whatsoever. Yet, the latter scenario is OK, and the former is generally not.

As far as I can speculate, the primary reason is to avoid over-exposure, which is to say, no insurer wants to write more than one policy for any particular risk – indeed any insurer that routinely did so would find itself in financial distress. But we don’t need an insurable interest requirement to prevent overexposure, only a strict underwriting policy of “one policy per risk.” The insurable interest requirement, then, is a derivative of this fiduciary requirement, and it exists because common law evolved in such a manner that we understand that a certain party may now have (or in the future acquire) a claim of dependence on the insured party/ so the purpose of the insurable interest requirement is to prevent another party from preventing the exercise of that claim. I think this is pure poppycock, and not even applicable in most circumstances*

However plausible, the above does not explain why Joe’s girlfriend and Joe’s favorite charity may not be co-beneficiaries. Nor does it explain why Joe’s girlfriend and Joe’s favorite charity may not be primary beneficiaries on two separate policies written by two separate insurers.  Nor does it explain how a charitable beneficiary can have any interest even approaching “insurable” in an individual.

So my question is: what is the practical application of the ‘insurable interest’ requirement? I certainly understand how it might be used as an underwriting tool – but I don’t understand why it’s an across-the-board requirement. It seems like it might be profitable to offer policies without a traditionally “insurable interest,” doesn’t it?

If you’ve got specific knowledge regarding my inquiry, please post a comment or send me mail.

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*E.g., The moment the party with the alleged right to dependence decides to exercise that right, the existing policy would be voided and premiums returned to the payor. A new policy could then be written to secure the insurable interest. All of this, however, presupposes that it’s proper to allow usurping claims of dependence. If, after all, I’ve promised a brother, a friend, a girflriend, a charity – that in the event of my death, they will benefit – who is anyone else to intervene in that matter? But that’s a digression I’d rather not examine today. (back)

no third solution

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