A Causal Debunking of the Libertarian Platform

Note: The following is an excerpt, a single post, from my end of an ongoing discussion/debate with libertarians (full thread here).

Infrastructure doesn't scale down to the local level. Its whole-clothe scale is the entire reason for the need for infrastructure and the criteria by which it is categorized. You can't build infrastructure locally. You can't build a nation at the state level. That thing, that special sauce, that essence that determines the difference between nations is exactly that thing that can't be done at a scale below the scale of the whole nation. It doesn't matter how pissed off you are that you can't keep all of your income, that you should have to pay some of it back to the system that made it possible for your money to have value, your anger isn't going to change the causal reality of economics and infrastructure. There is a classic cartoon image in which a person is sitting on the very branch that he is furiously sawing through. The libertarian philosophy is perfectly illustrated by this cartoon. The whole libertarian position is anti-causal. It flips cause and effect to satisfy a childish tantrum of short sighted selfishness.

I had a friend in Santa Cruz who was obsessed with new age self help fads. We were walking along the ocean one day when she excitedly described a class she was taking at a local continuing education facility. The class was called "Change Your Personality By Changing Your Handwriting". After describing the class exercises, she said, "Oh my, I forgot who I was talking to… why aren't you attacking this whole idea?" I said, "I am thinking, just a second." And then I began… "OK, I've got it. Imagine you are driving your car down the highway and you reach down, tear away the plastic lens in front of the speedometer, grab the red needle, and pull it one way and then the other… what do you suppose will happen to your speed?"

And then I attempted to explain the difference between cause and effect. I tried to explain that in any system, each of the attributes of that system are part of a causal network – that some of these attributes are more cause and some more effect. I explained that, underlying any system, there is a hierarchy of influence, a linear cline on which all of the elements are arranged by their relative influence. In the system that is your car, the speedometer falls very much on the effect end of the influence hierarchy. The speedometer measures and reports the speed of the car. But the speedometer doesn't much effect the speed of the car.

All measurements require a physical linking between the measurer and the system being measured. And yes, measurement always effects the system being measured – the car will in fact change speeds when you drag the speedometer needle one way or the other. But this linking is so heavily weighted towards effect that this backwards linking causality, its effect on the car's speed, would be so slight that you would be hard pressed to build a mechanism sensitive and accurate enough to detect it. That is what makes a speedometer good at reporting. It is designed to be mostly effect and assert very little cause. If you want to cause the car to go faster or slower, the accelerator and break peddles are a far better choice as they were specifically designed to sit at the causal end of the car's cause and effect influence hierarchy.

While I am sure that it is true that statistical correlations can be found that link personality types with certain handwriting attributes, the link is certainly heavily weighted towards effect and away from cause. While handwriting might indeed loosely reflect personality, the conclusion that personality types are caused by handwriting differences fundamentally ignores all of the actual influences that add up to shape the personality of any individual human. That I would have to explain this fundamental aspect of any system to a grown adult with an IQ well above average says a lot about the causal influence hierarchy within the human brain. This basic "design" flaw results almost always in emotionality that supersedes rationality… the libertarian world view for instance.

So, yes, lets imagine a full implementation of the emotionally rich, and rationally poor libertarian platform. Without income taxes, you now have 100 dollars in your pocket where you previously had just 70. But without the infrastructure from which your dollars derive value, the infrastructure that 30 dollars in taxes plan, build, and maintain, you might as well not have any money at all. Without a nation-wide, world-leading infrastructure, the effective buying power of your 100 bucks is exactly zilch. Welcome to the Congo.

Randall Lee Reetz

A Plan To Re-Invigorate Long-Term Capital Markets

Human behavior favors the immediate. Nobody willingly chooses to wait when an option allows instant or near-term gratification. This tendency naturally results in imbalanced systems. The recent investment market crash is evidence of what happens when short-term behavior is at odds with the medium and long term needs of a healthy economy.

To make matters worse, our tools evolve naturally in directions that mimic human proclivities, catalyzing the very natural and human obsession with the immediate. As investment securities markets are more and more influenced by and accelerated through the use of automation technologies (the computer and global communication networks), they trend naturally towards an over-valuation of short-run returns and under value long-run returns. Even if traders or fund managers start off with long-range, future-looking, wide-perspective goals, the competitive pressures placed on them simply for sharing trading facilities with companies that make money by trading on shorter and shorter time frames forces them towards similar behavior. When you are competing for money, and that money is changing hands in shorter and shorter cycles, money available for long range investments and the types of businesses and infrastructure plays becomes scarce. You either join the race towards the immediate, or you go without.

However, a thriving economy absolutely depends upon the continuous and long-range capitalization that actively supports basic science and the steady infrastructure improvements that build, promote, and maintain complex supply chains that constantly evolve towards greater productivity.

Though a healthy and vibrant economy profoundly depends upon capital fluidity, upon responsiveness to investment demand, the recent trifecta of market boom/bust cycles (energy, dot-com, and real estate securitization) has shown that revenue schemes that do nothing more than move money around can exert too much influence on the entire market landscape that shapes our national and international economies.

Three times in a row we have witnessed first-hand how second tier capitalization (business that make their money by repackaging investment risk) tend to quickly and fatally overwhelm the total investment market. These securitization schemes do better in the short term than standard capital markets because the value they trade is not directly tied to the success of the actual businesses and infrastructures that they capitalize. In market competition for investment dollars, abstraction schemes provide an artificial advantage that is impossible for real businesses to overcome.

If investors have the option of making a quick bet against market stability, an option that is not in and of itself dependent upon actual consumer or business to business demand for actual product or service, of course the capital will follow the quick and the fake over the slow and the real. This is a natural and predictable attribute of the behavior of capital markets.

So what is to be done?

There are many potential solutions and solution categories. Greater regulation of markets. Tariffs and taxes that are then redirected through government advisory boards that seek to determine the areas of funding that will have the greatest impact on future productivity. New kinds of markets and financial products that somehow reword long range investments. Public education directed towards society-wide changes in social morality and long range responsibility to future technologies and infrastructures. Switching to a benevolent dictatorship and appointing exactly the right leader with exactly the right understanding of productivity building economic mechanisms, and the will to make it so. Each of these options has deep potential for failure. Most are simply impossible or entirely romantic.

After some thinking, I came up with a plan that just might work.

Lets say the government set a Target Average Investment Period (TAIP). This TAIP (for sake of argument, lets say it is set at 'two years') would be the time delay before any investment you make could be evaluated, cashed in, or traded. It is an "Average" because you can make any number of investments but the average duration of your securities each time you invest has to be at least as long as the current TAIP setting. Some algorithm or official committee (Fed Board?) sets the value of the TAIP at some set interval (every year?) or, as is true of the Fed Rate, whenever the governing body decides the economy demands an adjustment.

In practice, what it means is this: If you purchase a thousand dollars in 1 year stock (one year 'less' than 2 year TAIP) you must offset this purchase with investments worth at least one thousand dollars in a 3 year stock (1 year 'more' than the current TAIP). An investor can offset securities purchases with periods shorter than the TAIP with any combination of investments longer than the TAIP so long as the total average of all purchases made at that time is equal to or greater than the the current TAIP setting.

In this way, securities are not simply tied to a company or fund or product, but also to the duration of the investment. If you want to partake in microsecond trading, cool, just as long as you offset those short run investments with an investments of equal value at the opposite end of the TAIP.

You don't just buy IBM, you buy IBM at duration. An investor can choose any combination of purchases (all of IBM or short term in IBM and long term in Intel). Alternatively, financial entities can be as creative as they want to be in designing investments products so long as the end result conforms to the current TAIP setting.

The government would fine-tune the TAIP the way it now fine-tunes the prime lending rate. Hell, if it works like I think it will, this adjustment will be more important and more reliable than prime rate manipulation.

Mostly, this scheme has the benefit of promoting the types of long-range investments that a strictly free market tends away from. And, it does so without restricting short range trades or the full range of trading period fluidity or investment products.

Randall Reetz