Outsourcing

In the Libertarian Universe, in which the individual is sovereign, agreements and contracts are made between and among purported equals. These interactions of mutual interest benefit both the individuals involved, and thus in the aggregate all of society. In the simplest cases, such agreements play upon the coin of trust and self-interest. If a party to an agreement were not up uphold and abide by his obligations, the invisible hand of the market in trust would intercede and inhibit the wrong doer from being able to conclude future arrangements with knowing interlocutors, and thus greatly hinder his efforts to improve his station in life. But as business and contracts become more intricate and complicated, can we expect our intrepid and hardy individual to police all the interactions he has with others? People being people, and business being business, there is the constant temptation to seek advantage between the lines of an agreement, or to stretch the ethical boundaries of one. Is it then philosophically acceptable in this world of Liberty to outsource the effort of monitoring and enforcing adherence to the rules?

     Indeed, free individuals can combine their efforts and resources in a variety of ways, taking advantage of the economies of scale to achieve their ends. In the legal and business worlds our freedom loving man can become corporate with others—and now thanks to the Supreme Court achieve immortality, since now corporations are people too. (Why wait for cryogenics when all one has to do is incorporate!) As an enforcement mechanism, the board members of a corporation are charged with overseeing its activities—presumably to keep it within certain boundaries while still providing value for the owners. But who’s to look overhard when the compensation is so fine? And the stockholders themselves have the power, through their voting shares, to punish directors and executives who stray from the text and spirit and ethical boundaries of the corporate business agreements. But as long as the dividends keep coming, and the stock value keeps rising, why rock the boat? On the other side of the business ledger, individuals can enhance their voices and strengthen their hands in the contract process by forming unions. But surprisingly, to the Libertarian this smacks of coercion rather than free association. (Why shouldn’t the individual be free to sell his labor and effort as an individual in the marketplace—and indeed he should. But is it not also a smart and legitimate tactic for labor to use economies of scale as well?). Labor and unions too can add a salubrious influence into the corporate atmosphere, shining light on some business practices that may need disinfectant. But the worker may be content to have a job or worried about keeping it—and not wish to jeopardize the company which supplies his paycheck. So what happens when the members of the corporation, the stockholders, the unions, and the customers all are enmeshed with irrational exuberance and not exercising proper oversight? Who’s to mind the rule book?

    Of all the associations of free individuals the most notable is that of government by mutual consent. To collectively form a system to synthesize, maintain, and enforce the ground rules upon which we all operate is the essence of self-governance. The body politic to which we all belong may willingly outsource the enforcement of the rules of the game that we freely and collectively agree upon in our business dealings with one another. And when through hubris and greed particular corporations have enriched themselves, their executives, and their board members, defrauding customers and stockholders by hiding transactions and behaviors, is it not the proper position of our freely constituted government to bring order and accountability to the system?

    Today the banking, securities, and housing markets—intertwined as they may be—have demonstrated, in spades, that it takes more than open eyes of free individuals to monitor and regulate their behaviors. Certainly the Libertarian ideal of ‘caveat emptor’ is a necessary guide to an individual’s entry into the market. But is it sufficient? Perhaps such an injunction and warning would be if we could assume the banks and others would deal with customers openly and fairly, accurately detailing risks as well as benefits; would deal with stockholders honestly and ensure executive compensation reflects business performance; would deal with regulators on the up and up, adhering to the spirit as well as the letter of a rule. As amply demonstrated of late, such an assumption could easily land one out of a job, out of a pension, and out of a home.

If we can’t assume our immortal collections of individuals who have incorporated will deal with other mere mortal individuals in an open, honest, transparent manner in the marketplace, then what recourse is there but to have our freely constituted government take a hand in enforcing remedies and exercising oversight? How, pray tell, is this socialism? How, do say, is government ‘interfering’ in the market when it is we who are the government? And how, if we allow the perpetrators of financials shenanigans to remain or become even more unfettered, is the individual who is in need of financial services going to exercise due diligence if the requisite information is not available or disguised? Isn’t it wise for us to outsource this tasking to agents who are more competent to handle the challenge? Isn’t such a task the very essence of government? Or does “Promote the General Welfare” just mean let the money write the rules? So it would seem, today—and most everyday. How does this promote the exercise of Individual Liberty? Mitt? Newt? Ron? Anyone? I’d like to know.

About Monk

Schooner Captain, pilot, and aikidoka
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8 Responses to Outsourcing

  1. Brian Healy says:

    Points to consider on the current situation.

    Allot was driven from the ground up. Many people bought beyond their means for overvalued property. This bubble drove the mortgage and derivatives frenzy.

    Lehman Brothers did fail. Others were going to: Goldman, AIG and BofA. These were bailed out by the gov’t.

    I think the question is would it have been better to prop up the consumer ? The banks ? Or No one ?

    Banks were chosen and the climb out is slow but moving forward. Looking at the EU, they are playing blame game and suffering.

    • Monk says:

      My, that was quick. Thanks Brian. All good points, but my major beef is with those who implicitly or explicitly state that government has no business regulating behavior of banks/corporations/other entities. I don’t suggest we should ‘prop up’ anyone, banks or consumers. Individuals certainly did bite off more than they could chew in the mortgage market–oftentimes in the rush to get in the game. But the game was rigged. All I am suggesting is that we, through our government, has a responsibility to set and enforce the rules of the game–and to the greatest extent possible keep the rules neutral. But, as always, money generally writes the rules. That does not mean that even money can overstep and fail, as in Lehman etc. Frankly, it would have been really dicey, but I do wonder what would have happened if we’d let the market work its magic and allow the rest of the edifice to tumble. Certainly there would have been more pain. But behaviors may have been chastised and altered. As it is now, the hubris reigns again.

  2. Brian Healy says:

    I would say behavior can not be regulate. The best is risk mitigation. Certain institutions were deemed to big to fail. Any regulation should focus on risk / impact of having anything so big that it can tumble an economy. People will always look to maximize a position.

    The error of the FI was believing their own models and having so much unhedged risk. The government did not even look and if the did look did not care. Ala Bernie Madoff. This will always be, as it is behavior. So, institutions need to keep at size where their failure is not our problem.

  3. mikem says:

    Agree entirely. How many reminders do we need that “the market is not self-regulating”? Business is LEGALLY prohibited from serving its stockholders in any way other than seeking profit. Most–the majority–of business leaders are morally upright, good community people. And then there are thousands of examples every year of business leaders perfectly happy to abuse workers, rape the environment, lie, cheat, steal, and pretty much screw the world for a buck. The community must establish common standards.

    I find it hilarious–no, tragic–that a certain group of people is bitterly offended that catastropihcally poor people would “break our laws” to come to our country to work their rear ends off, do work no one else is willing to do, raise strong families, and pretty much do everything every other immigrant generation has ever done; for this, they want to erect border fences, fly UAVs, sunder families, destroy businesses, and so on. I.e., “regulate the commons” for the “common good” as they see it. But tell them a CEO has knowingly led common folks into mortgages they couldn’t afford to bankroll a third vacation home, and it becomes, “you can’t regulate the job creators.”

    That way lies a de facto oligarchy. And the trouble is, when all the resources lay in a few hands, they manage the narrative: A million bucks can buy you a lot of image control.

  4. Cowboy says:

    Monk,

    “People being people, and business being business, there is the constant temptation to seek advantage between the lines of an agreement, or to stretch the ethical boundaries of one.”

    Your words are true. This temptation is always there. But if there is no true accountability for one’s actions, inflicted by the market’s invisible hand, then where is the incentive to be fair and not infringe on the other individual’s rights? Government oversite as a precursor to market response would work if it were 100 percent informed and always correct. But it is not and never can be all knowing. The market’s natural solutions are complex, not always timely and often quite harsh but they are always correct and lasting. Even the market’s response to incorrect government solution eventually will overtake correctly but I fear by then ultimate economic collapse and chaos will be realized.

    • Monk says:

      Hey Cowboy–
      I would love to see a world in which there were “true accountability for one’s actions”. And I am certainly not arguing for gov’t direction or control of the market. However, it is now obvious that the market is not self-regulating–at least not until unacceptable damage is done. Otherwise we would not have rivers that catch on fire, wildlife whose eggs become nonviable, banks that play roulette with deposits, or bridges that fall into the chasms below. Certainly we, though our government, can overreach and inhibit the freedom enshrined in the market–but the market does need some guidelines and standards, some rules, within which to operate. All I am arguing is that we, through government, have a responsibility to set some guidelines and standards–and then get out of the way and let the market perform its magic, to the benefit of us all.

      • Cowboy says:

        Our differences may lie in what is considered “unacceptable damage”. As Brian highlighted, should large companies be allowed to fail? Is the resulting economic impact unacceptable or is it necessary to correct the bad business processes such that reoccurrence is lessened? I lean toward letting them fail. Then the other companies who were more prudent in their business practices can scavenge what is left to their advantage rather than be penalized by staying afloat and now have to endure the revived competition of a government backed rescue. I prefer a hard fall and economic impact that cleanses the field in order to promote rapid recovery of the survivors and ultimately the overall economy at a healthy pace. I think we have enough or perhaps already too many laws to guide and set standards for the market. There may, however, be more of a problem with judicial and enforcement actions. Seems like there is always new law piled on top of old that was already sufficient to guard market action if enforced. At some point so many levels of laws can conflict and overwhelm business until growth stalls. Maybe our efforts in government should be to review all policy, law, and guidance removing that which serves no purpose other than to conceal the constitutional premise which was all that was really necessary in the first place. Then enforce.

        Good discussion. I must think more on it … back to building airplanes.

  5. Monk says:

    Morning Cowboy–
    I generally agree–people and businesses should be allowed, that is have the freedom to fail. But it would have been quite the Libertarian experiment, during this latest debacle, to let the banking/finance/automobile industries collapse. Politically, only the die hard Libertarians and the survivalists in their forest redoubts would have welcomed such an occurrence. Anyone with a job in the industries, or with a banking account, or savings, or stocks and bonds, or a pension, or involved with trade, or… etc., would have rued the outcome. My main point is, if such a central industry, which is crucial to the well-being of the US and world economy, would not be allowed to fail, then we collectively, through our government, are required to lay down some ground rules and boundaries. What those rules and boundaries should be is not my argument. There are several competing approaches–all of which have their goods and others. My contention is with those who claim we have no role in policing the market at all. No game works without rules–including the market. The invisible hand does not work in a vacuum, but within a prescribed arena.
    Love your aircraft pics. Looking forward to flying with you again.

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