Tuesday, February 21, 2012

Professor Alan Meltzer's Three Laws of Regulation

Alan Meltzer’s Three Laws of Regulation:

1. Lawyers and bureaucrats regulate, but markets circumvent regulation. 

2. Regulations are static. Markets are dynamic. 

3. Regulation is most effective when it changes the incentives of the regulated.

From a Reason review of Professor Meltzer's new book "Why Capitalism?"

105 Comments:

At 2/21/2012 5:25 PM, Blogger Hydra said...

Markets circumvent regulation because markets are dynamic and regulations are not.

But it is possible to have market based regulation which IS dynamic, and therfore provides the correct amount of regulation for the best and most efficient markets.

Which despite the cries of anguish this will promote is NOT zero regulation, any more than zero pollution is the correct answer for the environment.

As Professor Melstzer puts it, regulation is most effective when it regulates the incentives of those regulated. Those incentives will continue to change as the market develops its correct potential, and therefore the regulations need to change as well.

The goal ought to be to minimize Total Cost, where Total Cost = Production Cost, + External Cost + Government Cost.

 
At 2/21/2012 5:43 PM, Blogger Methinks said...

If #3 is correct then regulation is extremely effective. It's not extremely effective at achieving the ends sought, but it's extremely effective at changing incentives.

Each regulation opens the opportunity to game the system and to gain advantages unavailable in a competitive market regulated only by the consequences of participants' actions. Markets have customers and those customers are effectively regulators.

The only thing top-down (as opposed to natural, market-imposed) regulation does is prevent all actors who don't happen to be politically connected from acting their best interest. Of course, this means that the vast majority are prevented from acting in their own best interest.

 
At 2/21/2012 5:57 PM, Blogger sethstorm said...


1. Lawyers and bureaucrats regulate, but markets circumvent regulation.

Which can be disproven with aggressive enforcement and with a robust anti-circumvention provision.

That drives a hole through to make it no longer a law.

 
At 2/21/2012 5:59 PM, Blogger sethstorm said...


The only thing top-down (as opposed to natural, market-imposed) regulation does is prevent all actors who don't happen to be politically connected from acting their best interest. Of course, this means that the vast majority are prevented from acting in their own best interest.

When it is done for the benefit of US citizens over non-citizens, that becomes untrue as the only political connection of citizens, is their citizenship.

 
At 2/21/2012 6:10 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 2/21/2012 6:18 PM, Blogger Ron H. said...

Methinks

Thank you for your thoughtful and meaningful comment. So far, it's the only one on this thread that even comes close to making sense.

 
At 2/21/2012 6:19 PM, Blogger Ron H. said...

"But it is possible to have market based regulation which IS dynamic, and therfore provides the correct amount of regulation for the best and most efficient markets."

And who should decide what is best and most efficient?

 
At 2/21/2012 6:30 PM, Blogger Ron H. said...

"Which can be disproven with aggressive enforcement and with a robust anti-circumvention provision."

...and what, exactly is a "robust anti-circumvention provision"?

So far, I think you've made me laugh every day for more than a week.

 
At 2/21/2012 6:37 PM, Blogger Marko said...

Ach, not again. Lawyers don't regulate, laws regulate. Lawyers in business mostly try to help businesses follow the laws. Don't blame the lawyers, blame the laws passed by governments. It doesn't matter that many legislatures are lawyers - they are not acting in their attorney capacity when they are members of the legislature.

Back in the common law days, the law evolved and dealt mostly with private enforcement of property rights. I think we all would agree there need to be ways for private individuals to enforce contracts and property rights, which is the same as saying we need a legal system and lawyers. What we don't need is massive regulation created by an administrative state.

 
At 2/21/2012 7:15 PM, Blogger Che is dead said...

Methinks,

Beautifully put.

 
At 2/21/2012 7:19 PM, Blogger Jon Murphy said...

Which can be disproven with aggressive enforcement and with a robust anti-circumvention provision.

That drives a hole through to make it no longer a law.


Actually it doesn't. You assume a hypothetical situation. That's like saying "Assume people could float. That disproves the Law of Gravity."

However, I am willing to give you a chance to redeem yourself. Name me one market, just one, that has not circumvented regulation.

 
At 2/21/2012 7:32 PM, Blogger Benjamin said...

Milton Friedman advocated taxing pollution.

 
At 2/21/2012 7:53 PM, Blogger kmg said...

What is funny is that problems caused by government meddling have successfully been blamed on capitalism.

So when socialism doesn't work, the answer is always 'it was not done enough, so we need MORE socialism;.

 
At 2/21/2012 9:18 PM, Blogger Methinks said...

Thank you, Ron & Che.

Marko,

For the record, I love my lawyers (who help me navigate regulation in my industry). The industry has some dodgy characters, but I've had no trouble finding really great professionals.

I might have over-thought it, but I took it to mean that lawyers help shape the regulation because enforcement creates precedent. Regulation is most often written so broadly that lawyers have a hard time advising clients how the regulator will interpret the regulation and what the consequences may be. We and our lawyers rely on the regulator's previous actions against what it perceives to be violations to inform us. The past few years of ad hoc rule making by regulators has been very interesting for all of us.

 
At 2/21/2012 10:15 PM, Blogger sethstorm said...


However, I am willing to give you a chance to redeem yourself. Name me one market, just one, that has not circumvented regulation.


The one that serves you your music and movies in a very consumer-unfriendly wrapper, protected by the DMCA.

 
At 2/21/2012 11:00 PM, Blogger Hydra said...

Each regulation opens the opportunity to game the system and to gain advantages unavailable in a competitive market regulated only by the consequences of participants' action.

++++++++++++++++++++
Oh horse manure. OMarkets regulated o ly by the cossquences of ones actions are rife with opportunities to game the system. That is one reason we have so many regulations to temper peoples actions.

Another reason is that businesses deliberately lobby for, and get, regulations that are extremely effect give in meeting their goals, generally to stifle competition.

But to blame this on the regulations is as stupid as accusing a gun of murder.

The problem is not that regulations do not work or cannot work.

The market may be so vast and changeable that we can never hope to regulate it perfectly, or to keep the regulations contemporaneously adjusted, but there are a virtually unlimited number of ways an unregulated market can screw up as well, so even a handful of useful regulations mark an improvement.

Short of a few despotic regimes America is one of the most highly regulated countries on the planet, and it is one reason our economy is so successful.

 
At 2/21/2012 11:21 PM, Blogger Hydra said...

What meltzers rules show is not what is wrong with regulations, but what is wrong with how we go a out applying them.

Your steering mechanism, flight controls, your mouse pointer, and many other things provide a feedback mechanism, and often one that is self adjusting, to prevent wild oscillations.

We have not yet applied that elementary idea to market controls, principally because so many people like methinks are hung up in the dark ages of economic theory, accepting as Gospel models that are simply and obviously oversimplistic, and mostly wrong.


After all, if the argument is that the market is so complex that no central authority is smart enough to manage it then a) there is no reason to believe the unregulated result will be benevolent, and b) there is no reason to believe that those who claim it cannot be managed have any better picture of it than the regulators.

It strikes me as a particularly dark and pessimistic view of things to claim that there is nothing we can do to improve an economic system That is of our own making. To me, that sounds like the ravings of some poor soul who pondered a problem and could make nothing better of it but the claim it is unmanageable.

 
At 2/21/2012 11:30 PM, Blogger Hydra said...

And who should decide what is best and most efficient?

+++++++++++++

Do you not understand anything? You design it so that the amount of control is market based.

Or else adopt adopt the idea that the goal is to minimize total costs: TC = PC+ EC + GC

All that is required is an agreed upon set of metrics.

 
At 2/21/2012 11:34 PM, Blogger Hydra said...

Name me one market, just one, that has not circumvented regulation.

++++++++++++++++++++

Isn't what you are saying is that every market has at least one crook willing to break the law, or its intent?

That is hardly a condemnation of the regulation as much as the circumventors.

 
At 2/21/2012 11:58 PM, Blogger Hydra said...

Kmg equates regulation with socialism, which need not be the case.

Viewed as equalization and protection of competing rights, regulations promote more individual liberty, not more socialism.

 
At 2/22/2012 2:56 AM, Blogger Ron H. said...

"The one that serves you your music and movies in a very consumer-unfriendly wrapper, protected by the DMCA."

You're kidding, right?

You must not be aware of the problems the music and movie industries have with piracy and file sharing networks.

IP is much harder to protect than physical property. There is no lock that can't be picked.

 
At 2/22/2012 3:11 AM, Blogger Ron H. said...

"Oh horse manure. OMarkets regulated o ly by the cossquences of ones actions are rife with opportunities to game the system. That is one reason we have so many regulations to temper peoples actions."

Says the guy who apparently doesn't understand the meaning of the term "game the system", or perhaps it's the word "market" that's confusing to you.

"Another reason is that businesses deliberately lobby for, and get, regulations that are extremely effect give in meeting their goals, generally to stifle competition."

Yeah, that's what she said. Read what you quoted again, but this time slowly. Could that be a form of "gaming the system"?

"Short of a few despotic regimes America is one of the most highly regulated countries on the planet, and it is one reason our economy is so successful."

LOL

You have this backwards. It is successful DESPITE the clueless attempts by people like you to correct things that aren't problems to begin with.

Learn some economics.

 
At 2/22/2012 3:19 AM, Blogger Ron H. said...

"Do you not understand anything? You design it so that the amount of control is market based."

Design something? Your inability to envision anything working well without top down direction leaves you unable to understand human nature, or economics.

"Or else adopt adopt the idea that the goal is to minimize total costs: TC = PC+ EC + GCAll that is required is an agreed upon set of metrics."

That will never happen. Think spontaneous order, and give up this central planning idea.

 
At 2/22/2012 3:42 AM, Blogger Ron H. said...

"Isn't what you are saying is that every market has at least one crook willing to break the law, or its intent?"

That means that not everyone agrees that the law or regulation is just.

Recall that before the War of Independence John Hancock was a successful smuggler of Dutch tea, and became wealthy. He was breaking the law. Do you condemn him?

What about state laws that required seperate accomodation of blacks and whites in restaurants? Were those who failed to comply crooks?

Prostitution flourishes everywhere in the US, despite laws against it, as does trade in illegal drugs.

Laws that limit freedom of individual choice and action are bound to fail.

"That is hardly a condemnation of the regulation as much as the circumventors."

It means the regulation is misguided.

People will do what they want to do, to a great extent, despite well intentioned regulations by those who they can choose for everyone.

 
At 2/22/2012 3:51 AM, Blogger Jon Murphy said...

The one that serves you your music and movies in a very consumer-unfriendly wrapper, protected by the DMCA.

Very bad example. There is a huge black market involving music and movies content. C'mon, I didn't even have to think about that one.

 
At 2/22/2012 3:55 AM, Blogger Jon Murphy said...

Isn't what you are saying is that every market has at least one crook willing to break the law, or its intent?

I suppose that's a cynical way of looking at it, but yes.

But just because one breaks a law does not make it a detestable crime.

For example, in New Hampshire, it is illegal to run a barber shop without a license. If I start offering haircuts out of my apartment to my neighbors in exchange for a fee, I am breaking the law. But is my action morally reprehensible?

 
At 2/22/2012 6:59 AM, Blogger geoih said...

Quote from Hydra: "The goal ought to be to minimize Total Cost, where Total Cost = Production Cost, + External Cost + Government Cost."

Cost is simply another price and is as dynamic as any price (unless forcibly controlled by the state).

Markets already regulate themselves. That's what a market is. If you want to regulate it artificially, then you're no longer talking about a market.

 
At 2/22/2012 7:02 AM, Blogger geoih said...

Quotes from sethstorm: "Which can be disproven with aggressive enforcement and with a robust anti-circumvention provision."

And: "When it is done for the benefit of US citizens over non-citizens, that becomes untrue as the only political connection of citizens, is their citizenship."

Three cheers for bigoted fascism!

 
At 2/22/2012 7:10 AM, Blogger geoih said...

Quote from Hydra: "The problem is not that regulations do not work or cannot work."

The problem is regulations are coercion and force used by self-interested individuals to manipulate and conviscate the property of others to their own benefit.

 
At 2/22/2012 7:27 AM, Blogger Methinks said...

Hydra,

I am always amazed by your endless ability to spew uninformed and self-contradictory drivel. I think we've found the one thing you truly excel at.

 
At 2/22/2012 11:02 AM, Blogger morganovich said...

"Three cheers for bigoted fascism!"

and geo nails it!

sethstorm in a nutshell.

upgrade it to "hypocritical bigoted fascism" and i think it's really the whole picture.

recall that seth refuses to buy all american clothes or audio video equipment, but demands that companies behave that way when they hire, hiring only americans, even if they cost more and lack the desired skills.

he refuses to put his own money where his mouth is when he buys his pants, but demands that those hiring do so.

the phrase "entitled fascist hypocrisy" comes to mind.

 
At 2/22/2012 11:35 AM, Blogger Seth said...

I believe these laws are applicable to company policies as well.

 
At 2/22/2012 11:41 AM, Blogger Zachriel said...

Benjamin: Milton Friedman advocated taxing pollution.

Methinks: The only thing top-down (as opposed to natural, market-imposed) regulation does is prevent all actors who don't happen to be politically connected from acting their best interest.

Is your view consistent with regulations concerning air pollution?

 
At 2/22/2012 8:25 PM, Blogger VangelV said...

A different view:


1. Lawyers and bureaucrats regulate, but markets circumvent regulation.

Actually, big businesses capture the regulatory process and have their lawyers write the regulations.

2. Regulations are static. Markets are dynamic.

Not to nitpick by looking at the words in a sense that Meltzer did not mean but regulations are not static. Times of regulatory uncertainty cause great damage to the economy.

3. Regulation is most effective when it changes the incentives of the regulated.

No. It is most effective when it is repealed.

 
At 2/22/2012 8:28 PM, Blogger juandos said...

Well either Stoll in his review of the book or Meltzer in writing his book seem to have forgotten a basic truth: Regulations = Taxes...

 
At 2/22/2012 9:31 PM, Blogger juandos said...

"If I start offering haircuts out of my apartment to my neighbors in exchange for a fee, I am breaking the law. But is my action morally reprehensible?"...

Only if your barbering skills are akin to the quality of your comments jon murphy...

Just saying is all...

 
At 2/23/2012 1:15 AM, Blogger Hydra said...

. Think spontaneous order, and give up this central planning idea.

++++++++++++++

Who said anything about central planning?

Lowest total cost is something everyone ought to be able to get on board with. And since that equation includes government costs, it explicitly calls for reduction in government .

As agreed here, every market includes bad actors willing to circumvent the rules and break the laws in order to gain personal advantage. Which would include a hypothetically free market, where there is nothing to prevent imposing on or stealing others rights.

That our system is successful despite all the regulations only suggests that we have a lot more crooks that need to be regulated.

What that equation says is that either too much or too little regulation will increase total cost, which no one wants.

Change cost for price if you like, The equation still holds.

It is not my drivel. I learned it economics in graduate school.

Even a hypothetical free market is a system, subject to gaming, so regulations are not the cause of gaming the system. Gaming the system begins with those that have no respect or unequal respect for other peoples rights. It is such people that create the need for coercive force. What that equation does is recognize that excessive government is not cost effective: something none of you would disagree with.

Study the input/ output tables. Every cost to a buyer is a price to a seller. The pie is not static, so the amount of money sloshing around from place to place in those tables is increasing.

But it does not increase because someone took advantage and gamed the system. They add nothing and should be scorned. The fact that some succeed does not mean the system of regulation has failed. It just means that, as the equation shows, there are some petty bad behavior that we don't want to enforce away, because the price of enforcement exceeds the value of the theft.

That makes such behavior: imposing on others rights, just because you can get away with it, no less reprehensible.

 
At 2/23/2012 1:23 AM, Blogger Ron H. said...

"Who said anything about central planning?"

Ahh... you did. you don't even understand the implications of your position, do you.

"It is not my drivel. I learned it economics in graduate school."

I'm beginning to understand the problem. This is not a very good recommendation for the state of education these days.

 
At 2/23/2012 8:33 AM, Blogger VangelV said...

Who said anything about central planning?

LOL

Either you don't read your own postings or you don't know the implications of what you are writing.

As agreed here, every market includes bad actors willing to circumvent the rules and break the laws in order to gain personal advantage. Which would include a hypothetically free market, where there is nothing to prevent imposing on or stealing others rights.

??? Haven't you heard of property rights? In a free market nobody is permitted to commit fraud, steal, or initiate violence against anyone else. A person who is inadequately insured or has not established a good reputation will not be able to conduct enough business to defraud or rob anyone.

Why exactly are you so ignorant of the issues yet keep posting over and over again?

That our system is successful despite all the regulations only suggests that we have a lot more crooks that need to be regulated.

You have no idea what you are talking about. Regulations are written by the crooks to protect their interests. Why exactly do you think you are forced to buy 'high-efficiency' washing machines that can't clean and dry dishes properly or use expensive and unreliable CFL bulbs that are full of poisonous chemicals?

The answer is simple. The producers wrote the regulations because they wanted to make more money on higher margin sales. The captured the regulators and supported regulations that made themselves richer while they made consumers worse off. I don't know if you are naive, ignorant, or just stupid because you keep making the same simple errors over and over again.

What that equation says is that either too much or too little regulation will increase total cost, which no one wants.

That equation? Where the hell do you get this stuff?

Change cost for price if you like, The equation still holds.

It is not my drivel. I learned it economics in graduate school.


Ahhh. We now have our answers. A very compliant mind gets brainwashed by ideologues who pretend that they understand economic reality and repeats the same drivel that he was taught because he cannot recognise it for what it is. Thanks for the explanation.

Now go out and get a real education.

 
At 2/23/2012 10:36 AM, Blogger Hydra said...

Either you don't read your own postings or you don't know the implications of what you are writing.

I propose market based regulations. The goal is to achieve lowest total cost while equalizing the protection for all kinds of property rights. Like any market, there will e a few sociopathic oafs who would rather circumvent the rules for an apparent personal gain. People who will never agree to any rules because they believe their freedoms trump all others.

However, the only central authority required is agreement how costs will be determined, and what the feedback structure is to be. The RESULTS of such a plan will be entirely market driven.

In a perfect world, everyone woul be polite and respectful of others and never cheat on their ethical obligations to get ahead. While my plan may never happen either, something like it is far more likely to happen than a perfect world.


In a free market nobody is permitted to commit fraud,...

Who sets the rules for what constitutes fraud, and who enforces it? My theory is entirely based on property rights: in fact it requires recognition of many more kinds of property, with more clearly defined ownership, and stronger protections. While eminent domain would remain, for example, properly defended property rights would mean that full and fair compensation be paid, and not the usual travesty that esxists today.


This is not a very good recommendation for the state of education these days.

These days? This theory is hardly new. What is sorry about education these days is that dogmatists of every stripe think they know everything, and refuse to learn as new facts are uncovered. It is a mental version of refusing to negotiate, thereby circumventing the market rules for discovery of truth.


A person who is inadequately insured or has not established a good reputation will not be able to conduct enough business to defraud or rob anyone.

Horse manure. Your theory also requires inexpensive and rapid access to some central authority who will decide such things. You forget there is a temporal and locational aspect to this: fraudulent, ethically shady, and businesses with large externalized costs can start up, make a bundle, and disappear.

Big deal if they go out of business: they have alredy collected on the damage they caused: unless you think the central authority that enforces such things will be large, ubiquitous, and permanent.

 
At 2/23/2012 10:37 AM, Blogger Hydra said...

Why exactly are you so ignorant of the issues yet keep posting over and over again?

Why is it you insist on a dogma that is impervious to evidence? What makes you think I am ignorant of the issues? Government has taken millions out of my pocket, at the behest of others who have sold a false vision of costs to the community, and who benefited their property rights at the expense of mine.

If they had to justify their plan on total costs, either the results would have been different the compensation would have been different, or both. One result of what did happen is that I am a lot more terrified of local government than some central authority.

There is only one issue here: every right one person claims will inevitably infringe on someone else's rights. On a crowded street, we accept some amount of inadvertent and minor jostling, but we do not accept bullies, and we don't accept the claims for major damage over a trivial event, same as described in the total cost equation.

It is you who do not understand the issues, and reject any plausible improvements.


You have no idea what you are talking about. Regulations are written by the crooks to protect their interests.

Which is why so many foreigners flock here with their investments?


Why exactly do you think you are forced to buy 'high-efficiency' washing machines that can't clean and dry dishes properly or use expensive and unreliable CFL bulbs that are full of poisonous chemicals?

Because the Total Costs have not been properly assessed. Because some people sold the idea that their rights are more valuable than others. For example, your claim that CFL bulbs are "full of posonous chemicals" amounts to considerable hyperbole. You are selling an idea of "cost" that is not true as stated. Such a statement indicates you don't give a crap about competing rights, and that is the sort of thing that leads to the mess we are in.

That equation? Where the hell do you get this stuff?

The equation is TC = PC + EC + GC.

Total Cost = Production Cost + External Cost + Government Cost, where benefits are counted as negative costs. I beleive it is contained in several of my graduate economic texts, and strangely enough, there is one that is very similar in my thermal engineering text, as I recall.

Like I said, this "drivel" is not my idea. All models are wrong and some are useful. I find this one more useful than a hypothetical free market. The costs in this equation do exist, even if they and the Total Cost change over time. The extent to which we do not know what those costs are, is simply a measure of economic ignorance.


A very compliant mind gets brainwashed by ideologues who pretend that they understand economic reality

Oh, so you and others ideologues like yourself are the sole central authority on what is economiclally real?

What I suggest is that the economic reality is out there: we just do not know hwo to measure it yet. But there is no point in going to that effort, if you start with a hypothesis that depends on being impervious to facts.

 
At 2/23/2012 12:29 PM, Blogger Hydra said...

You have no idea what you are talking about. Regulations are written by the crooks to protect their interests.

Some are. Others are written to protect innocent people from crooks.

Yeah, yeah, i know: there can be no stealing in a free market:

"if it's free, then I ain't stealing."

Razzo Rizzo.

The problem is determining the worthwile regs from the bad regs, and the best way to odo taht is establish markets.

You want to build something? Building permits are a hundred BP chits per 100 square feet. BP chits are issued to those people who feel they will be negatively impacted by new construction, and to those who feel development is a good thing. You may buy enough chits for your permit on the open market.

 
At 2/23/2012 1:53 PM, Blogger Ron H. said...

"What makes you think I am ignorant of the issues?"

Well, what you write next kind of gives us a clue:

"Government has taken millions out of my pocket, at the behest of others who have sold a false vision of costs to the community, and who benefited their property rights at the expense of mine. "

And yet...and yet STILL, you believe that government regulation and tyranny of the majority are good things. What happened to TC = PC+ EC + GC? I thought that always produced the best outcome.

How does it feel to be the external cost that's not paid? Your neighbors have found that the real formula is TC = PC + GC.

You seem to believe, for some unfathomable reason, that those in authority in a huge, distant central government are morally far superior to those in your local government. That requires mental gymnastics I can't imagine.

Your other comments regarding the legitimacy of eminent domain and will of the majority indicate that you don't believe you have the property rights you complain about losing.

Very illogical. How do you do it?

Either your property is yours, or it isn't. If you had property rights before, they can't legitimately be taken from you against your will, which is what it seems has happened to you. Government has done that. And yet...you are a government regulation fanboy.

Unbelievable.

 
At 2/23/2012 1:57 PM, Blogger Ron H. said...

"Your theory also requires inexpensive and rapid access to some central authority who will decide such things."

There it is again! We need central planning!

You just can't help yourself, can you.

 
At 2/23/2012 2:10 PM, Blogger morganovich said...

"BP chits are issued to those people who feel they will be negatively impacted by new construction, and to those who feel development is a good thing. You may buy enough chits for your permit on the open market."

and you don't think that such a system would incentivise people to profess harm where none might actually exist?

and who would adjudicate and put a value on such things?

and what about positive effects?

i might love to have a new convenience store nearby as might most of a neighborhood.

but the guy next door might claim harm.

how do you balance that out?

this sounds like a recipe for arbitrary bureaucratic fiat, not a market.

 
At 2/23/2012 2:14 PM, Blogger Ron H. said...

"These days? This theory is hardly new."

No, it was popularized with the publication of Keynes's "General theory".

"What is sorry about education these days is that dogmatists of every stripe think they know everything, and refuse to learn as new facts are uncovered."

New facts? About what, human nature? Do you think it has changed much in the last 10,000 years?

Markets exist because individual actors see an advantage to themselves in trading what they value less, for what they value more. Everything else evolves from that.

Your utilitarian view doesn't fit with this simple fact, and attempts to "correct problems" by those who think they know more than the market actors themselves, do more harm than good.

 
At 2/23/2012 2:20 PM, Blogger Ron H. said...

"The problem is determining the worthwile regs from the bad regs, and the best way to odo taht is establish markets."

That's a problem, all right - who gets to decide which are which? Once more, we need central planning, right?

You cannot just "establish markets" by fiat. Markets arise when individuals see an advantage to exchange with others.

 
At 2/23/2012 2:34 PM, Blogger Ron H. said...

"You want to build something? Building permits are a hundred BP chits per 100 square feet. BP chits are issued to those people who feel they will be negatively impacted by new construction, and to those who feel development is a good thing. You may buy enough chits for your permit on the open market."

What morganovich said.

Who, indeed, will determine the value of these chits? Central planning, of course.

Do you understand that the individual actors in a market determine the value of things, and not some government bureaucrat?

The people you think are better able to determine value than the market, simply don't exist.

You are just recommending a structured raffle in which the majority wins. That isn't a market.

You should go back to wherever you took graduate level economics, and demand your money back.

 
At 2/23/2012 3:13 PM, Blogger Hydra said...

Who, indeed, will determine the value of these chits? Central planning, of course.

==================================

You really do not get it? Really?


Central planning decides at a gross level how much building development they can allow without destroying the capital budget. That seems like a legitimate use of central planning. we can only build 600 units this year before we overtax the sewer sytem, whatever.


Now, assume that development rights are not owned by the county, but by the people of the county. So the county issues chits that are worth a portion of one development right, whether that is 1000 sq ft, or some other measure. It takes 100 chits (or some other number)

No one wants new homes built on that nice vacant woodlot next door. Some people do not want their schools overcrowded, some people are just opposed to change. They do not want development so they just hold on to their chits.

But the potential developer may be able to buy chits from someone else, at the other end of the county, or a carpenter who needs work.

Whatever the dynamic, the actual price the developer pays will be determined by the value of the development to him ( Developers with the best projects will be willing to pay more) and the price citizens are willing to sell their chits for.

People who are opposed to development can sit on their chits, but if it looks like the development will happen, they will bear the opportunity loss: they no longer get to oppose development for free.

Central planning has some effect on price because they set the gross limit on building, and the exchange rate between assent chits and the actual building permit, but at the end of the day, the dollar price of chits is determined by competing market forces, within certain constraints.

Like any other market, if planning does not allow enough gross units, then the price of chits will go up.

If the county gets their money through a tax on the sale price of the chits, then the county will have an incentive to allow enough building to maximize their revenue.

For example, if they set an allowand of 6000 units instead of 600, the county would issue on a per person basis enough chits to be traded in for 6000 bulding units. But if 6000 units are not needed or built, there will be a lot of extra chits out there and the price will fall.

Chits and the development plan would expire each year, and reissued the next year.

Is there still SOME element of central planning, sure. Is it MORE market driven and more responsive to needs than our current plan? Sure.

In some areas the argument against development is that it will cost the community money, for schools, and higher taxes. The sale (and taxation of) chits would counteract that. If it turns out that some anti-development person can get more for his chits than he thinks his taxes will go up, then that is evidence that the formerly assumed "cost" of development was wrong, and the entire system will have moved one nothch closer to lowest Total Cost.

 
At 2/23/2012 3:22 PM, Blogger Hydra said...

You are just recommending a structured raffle in which the majority wins. That isn't a market.

=================================

It is not a raffle, every citizen gets an equal number of chits. the market in chits decides what they are worth. Every environmental nut case and antigrwoth whacko can express their choices by withholding chits, but when they do they just make more money for those willing to sell their chits.

This puts a price on the cost of saying "no" which is a right they presently get pretty much for free, and then overuse, pretty much to the detriment of all.

There is of course a sort of cap on supply, which most markets also have. There is not an unlimited supply of Toyotas, and it takes some time for central planning (Toyota) to respond to more demand.

i don;t see the functional difference: it is notperfect, but neither is your plan, or the one we currently have.

 
At 2/23/2012 3:24 PM, Blogger Hydra said...

You should go back to wherever you took graduate level economics, and demand your money back.

===================================

You should understand that there already are structured markets which work just this way.

 
At 2/23/2012 3:29 PM, Blogger VangelV said...

I propose market based regulations. The goal is to achieve lowest total cost while equalizing the protection for all kinds of property rights. Like any market, there will e a few sociopathic oafs who would rather circumvent the rules for an apparent personal gain. People who will never agree to any rules because they believe their freedoms trump all others.

There is no such thing in the sense that you are using. The free market needs no external regulator.

However, the only central authority required is agreement how costs will be determined, and what the feedback structure is to be. The RESULTS of such a plan will be entirely market driven.

You are confused. No CENTRAL AUTHORITY is required because the consumers are in charge. Any producer who robs consumers and produces shoddy products is quickly exposed (and destroyed) by consumer organisations and competitors.

In a perfect world, everyone woul be polite and respectful of others and never cheat on their ethical obligations to get ahead. While my plan may never happen either, something like it is far more likely to happen than a perfect world.

The free markets need no utopian ideas of perfection. The only way for a producer to benefit over the long term is to get consumers to vote with their spending power. Those that don't are soon out of business.

It is your plan that requires a perfect world. In this world of yours bureaucrats are selfless, have perfect information, and perfect judgment. They do not abuse their power and certainly are not bureaucratic. But such bureaucrats do not exist. We live in the real world where those that have power are driven by political concerns.

Who sets the rules for what constitutes fraud, and who enforces it?

You ever hear of contract law? It is very simple and easy to enforce. In a free market system a company does not get a contract unless it agrees to an arbitrating body that ensures that the contract is adhered to and has insurance to pay off the harmed parties if the company refuses to abide by the judgment of the arbitrators.

My theory is entirely based on property rights: in fact it requires recognition of many more kinds of property, with more clearly defined ownership, and stronger protections.

You have no clue what you are talking about. As soon as an external regulator meddles in transactions between parties it violates their property rights.

You would be much more credible if you tried to be logically consistent.

 
At 2/23/2012 3:29 PM, Blogger morganovich said...

no hydra, it seem like you who do not get it.

you are creating one side of a market and handing out power to for epic stick ups.

what about the people who benefit?

i might love having a new store down the street, but still get paid for selling my chit thus letting me double dip.

and who decides who gets chits and how many and how frequently and what chit is usable for what?

can i sell my chit to a developer who wants to develop on the other side of town?

the rights structure you propose is immensely fraught with issues like that.

it also presumes that development is harmful unless you imagine that chits could have a negative price, which seems unlikely.

it also creates huge "last holdout" issues where if i need 100 chits, the last guy in can really cream me once they get scare.

it also has some serious rights issues involved.

why do i deserve to be compensated for other's development, especially if i am not harmed?

i can sell to a store 2 blocks away and get paid, but why? why am i entitled to that?

all this really is is a subsidy to existing owners disguised as a "market".

this "right" you are creating is utterly arbitrary.

the value is invented and based on fiat.

and how do we pass them out? by lot? unit? value?

 
At 2/23/2012 3:35 PM, Blogger Hydra said...

You cannot just "establish markets" by fiat. Markets arise when individuals see an advantage to exchange with others.

==================================

Of course not, and that is not waht I am suggesting.

Markets are made by buying and selling competing interests. What I suggest is identifying those interests, and creating new property rights which depend on those interests, and then letting those rights be bought and sold.

Right now, the county government owns the right to build, and they dole them out on an individual basis, depending on how much screaming from the adversarial public, personal predilections, who you know, and what gest paid under the table or through the PACS.

My plan creates a new class of property (development chits) which initally belong equally to everyone in the county, but which immediately assume difering values to all the "players" in the market, as you call them.

The role of Central Planning is REDUCED under this scheme, to managing the capital budget.

You might say what do we need that for? Privatize the streets and sewers. But you can;t even do that without some kind of central planning, and the failure rate of businesses doesn't suggest they are any better at it than goverment is.

 
At 2/23/2012 3:37 PM, Blogger VangelV said...

These days? This theory is hardly new. What is sorry about education these days is that dogmatists of every stripe think they know everything, and refuse to learn as new facts are uncovered. It is a mental version of refusing to negotiate, thereby circumventing the market rules for discovery of truth.

You are right about one thing. There have always been advocates of special privileges for authorities and special interests. The problem that those advocates have always had was an inability to put forth a logical and consistent argument. There is no way to justify having central planners trample on the rights of individuals by claiming that those central planners can provide a better outcome than the market. That argument was lost in the 1920s. Sadly, whoever provided you with your lousy education never got the memo.

 
At 2/23/2012 3:39 PM, Blogger VangelV said...

Horse manure. Your theory also requires inexpensive and rapid access to some central authority who will decide such things. You forget there is a temporal and locational aspect to this: fraudulent, ethically shady, and businesses with large externalized costs can start up, make a bundle, and disappear.

Not at all. That was the way business used to be conducted. If you were reliable a handshake was sufficient. If you did not do what you said that you would people would not do business with you. In a time when there was no illusion of government protection reputations did matter.

 
At 2/23/2012 3:44 PM, Blogger Hydra said...

what about the people who benefit?

The builders benefit by being ale to buy their way around regulations that might simply shut them doen at present. Citizens benefit from the cash they receive for their chits, offsetting perceived disadvantages like congestion and degradation fo natural beauty.

The whole point of this is that everybody benefits throguh the open buying and selling of something that was formerly centrally controlled. Citizens may evidence their choices, and officials can no longer say, "what the people really want is...."

What about the people who benefit? Good for them. That is the whole point.

 
At 2/23/2012 3:45 PM, Blogger VangelV said...

Big deal if they go out of business: they have alredy collected on the damage they caused: unless you think the central authority that enforces such things will be large, ubiquitous, and permanent.

LOL...Didn't you ever learn your history? Don't you understand the need for reputation in your industry? Or the fact that you can't get the opportunity to steal if you don't have it? Or the fact that you can't get certain contracts if you aren't insured? You really do need an education. If decide to get one, make sure that it is a good one.

Here is a good start.

Anarchy and the Law: The Political Economy of Choice

 
At 2/23/2012 3:46 PM, Blogger VangelV said...

Why is it you insist on a dogma that is impervious to evidence?

Funny but that was my question?

What makes you think I am ignorant of the issues?

Because I read the crap that you write. It is clear that you have never actually read about the socialist calculation debate and have no clue that your side lost it.

 
At 2/23/2012 3:48 PM, Blogger Hydra said...

Not at all. That was the way business used to be conducted. If you were reliable a handshake was sufficient. If you did not do what you said that you would people would not do business with you. In a time when there was no illusion of government protection reputations did matter.

===============================

Double horse manure. You are inventing a history that never truly existed. The situation you desribe was only partly correct: honest people do not need regulation, but there are and always have been enough circumventors and ethically corrupt people to require some way of enforcing contracts.

 
At 2/23/2012 3:52 PM, Blogger Hydra said...

Why is it you insist on a dogma that is impervious to evidence?

Funny but that was my question?

================================

But my theory is not impervious to evidence. Suppose that now the claim is that new development costs more than it benefits, and the law is based on that fact.

I don't believe that is true, but if my plan is put in place and people will not sell their chits, then I will be proven wrong.

As long as the current central planning regime is in place, there is no way of knowing.

 
At 2/23/2012 3:54 PM, Blogger Hydra said...

socialist calculation debate and have no clue that your side lost it.

===============================

This has nothing to do with socilaist calculations and everything to do with [new kinds of] private property and trade.

 
At 2/23/2012 3:57 PM, Blogger morganovich said...

"Right now, the county government owns the right to build"

not really.

the right to build comes with land.

permitting is not the same thing as a right to build.

so long as you adhere to zoning, you can build.

thus, the landowner owns the right.

zoning is, in many ways, already a protection of the rights of existing owners as you cannot buy the lot next to my house and put in a hog rendering plant.

you also need to consider the vast transaction costs you are likely creating.

under your proposed system, a builder will have dozens of people to deal with to build. they need to find them, and then transact.

this adds a great deal of uncertainty and complexity and cost.

 
At 2/23/2012 3:58 PM, Blogger Hydra said...

Or the fact that you can't get the opportunity to steal if you don't have it?

=================================

You need to learn some history. there are plenty of cases where people carefully built a loyal following, established trust, and then cleaned out the till and disappeared.


On a long term average, you are correct, bad places will disappear. That doesn't help the people who get scammed until the extremely lazy, generally indifferent, and hoplessy uneducated "market" eventually does its job.

 
At 2/23/2012 4:00 PM, Blogger morganovich said...

further, you really dodged the benefit issue.

if such "chits" let me, the builder, get around regulations as you propose, then i can buy them up from across town and put in a hip hop club next to your house.

i wind up paying a bunch of folks who are not harmed and harming your neighborhood without compensation.

if you make it completely localized, then i'll get nibmy'd to death.

your system seems to cause more problems than it solves.

 
At 2/23/2012 4:03 PM, Blogger morganovich said...

"Not at all. That was the way business used to be conducted. If you were reliable a handshake was sufficient. If you did not do what you said that you would people would not do business with you. In a time when there was no illusion of government protection reputations did matter."

i think this is a vast overstatement and some fairly romantic thinking.

in such a system, you can really only do business with those you know.

having reliable adjudication of contracts is very valuable. in many markets, like selling a home, you are unlikely to ever do business with the other party again and the number of transactions they have engaged in before is likely to be low or zero.

doing that on a handshake is very risky.

 
At 2/23/2012 4:05 PM, Blogger Hydra said...

the right to build comes with land.

=================================

Actually, it doesn't. It is not written into your deed, and it can be revoked at any time.

Living in an area that has been downzoned six seprated times, I can assure you that the right to build does NOT come with the land.

It can be both given and taken away, by not only the zoning, but by building regulations, and other agencies.

Under my plan it can still be given and taken away, but it takes a lot of people and a whole market to do it, not some board of five county "planners". Some people may have objectios on which they put a falsely high price, but under my plan the fact that it is false will be exposed.

 
At 2/23/2012 4:18 PM, Blogger Hydra said...

if such "chits" let me, the builder, get around regulations as you propose, then i can buy them up from across town and put in a hip hop club next to your house.

==================================

Possibly, yes.

How is that any different from now, when a crowd of activists can come from across the county and oppose your walmart?

What youare suggesting is that my property rights extend to the property adjacent to mine. And that I should have infinite rights to oppose his benefits at no cost to my self: my rights trump his.


If building rights come with the property, then I should have known that, and the price of my property would be reflected. If he is getting new rights that actually diminish the value of my property then I should be compensated.

Conversely, if the revenue from his enterprise lowers everyone's taxes, then they should be compensaed, for their loss if I prevail and overprotect my proeprty at the expense of his (and theirs).

But your example exposes several problems about property rights: assuming contor over something you do not own, or depending on central planners to do it for you. And expounding an assumed and arbitrary cost for something you just do not want near you.

You can always go across town and buy chits yourself, or you can buy your neighbors land.

itis a free market after all.

 
At 2/23/2012 4:24 PM, Blogger Hydra said...

i think this is a vast overstatement and some fairly romantic thinking.

================================
Thanks for the support, Morganovich. I believe you are correct on this.

Whether it is tribal elsers or what, some kind of contrct enforcement is required, or there is no incentive not to cheat.

 
At 2/23/2012 4:30 PM, Blogger Hydra said...

i wind up paying a bunch of folks who are not harmed and harming your neighborhood without compensation.

if you make it completely localized, then i'll get nibmy'd to death.

================================

Well, we agree on the localization of theft then: make a bundle and move on.

Yes there are problems, but my plan offer smore ways to solve them, and with a larger body of people involved. Or would you prefer a central authority?

As it is now, yu can get nimby'd to death by people from across the county, and it does not cost them ANYTHING. under myplan they would atleast have to give up the sale of their chits, and maybe organize a drive to buy them, or a boycott on selling.

Whether that would work or not would depend on how real the values are that they claim are being diminished.

 
At 2/23/2012 4:34 PM, Blogger morganovich said...

"How is that any different from now, when a crowd of activists can come from across the county and oppose your walmart?"

it's quite different.

in the wal mart case, you would still have a say and predictable zoning that meant that, if you paid attention when you bought, you would know if such a thing could be build next to your house.

under your "chit" system, you would have no idea.

that makes your property less valuable.

there is already a rights market built into property and property prices.

you seem to want to eliminate that and replace it with a system in which, while i have a chit i can sell, i have much less predictability around the property i buy.

"What you are suggesting is that my property rights extend to the property adjacent to mine. And that I should have infinite rights to oppose his benefits at no cost to my self: my rights trump his."

not exactly. what i am saying is that when you buy property, you know what rights you are buying and what rights your neighbors have and therefore can make an informed, long term decision and properly price the asset.

take that away, and your property loses value.

now you have to worry about the "craft tannery" next door.

"If building rights come with the property, then I should have known that, and the price of my property would be reflected. If he is getting new rights that actually diminish the value of my property then I should be compensated."

but you did know that. the zoning map should have made it very clear to you when you decided whether to buy and what to pay.

unlike your system, you knew exactly what you were buying and could price it accordingly.

with chits, you have no idea and pricing the asset becomes much more difficult. imposing this system on a neighborhood would up uncertainty and that drops prices. thus, the very imposition of this system would harm the value of everyone's property assuming they wanted to keep its use the same.

"Conversely, if the revenue from his enterprise lowers everyone's taxes, then they should be compensaed, for their loss if I prevail and overprotect my proeprty at the expense of his (and theirs)."

i have no idea what you are trying to say here.

"You can always go across town and buy chits yourself, or you can buy your neighbors land."

only if i know what's going to happen before it happens.

so now i have to pay to protect my rights?

or alternately, now i can buy up chits and make the land of everyone around me unbuildable without actually buying it?

seems like a system ripe for severe abuse, especially as the number of chits diminishes.

and what about a new buyer? if i sell my chit, then sell my land, the new guy is powerless, right?

 
At 2/23/2012 4:42 PM, Blogger morganovich said...

"Yes there are problems, but my plan offer smore ways to solve them, and with a larger body of people involved. Or would you prefer a central authority?"

i disagree. i think your system creates more problems than it solves and also buries any new buyers if the chit is gone and opens up numerous avenues of serious abuse.

further, i think you are drawing a false dichotomy.

what i want is a system than is known and knowable. rights are attached to the land and that of your neighbors.

your system of apportionment is just as arbitrary fro the get go, but makes it impossible to have any idea what your neighborhood is going to look like.

i'm not claiming either is perfect, but i think zoning determined rights are less bad than the fiat rights system you create that leaves a property owner with no predictability.

i'd pay more for a home in a residential zoned neighborhood than one in a "chit" neighborhood.

further, you are leaving out the totally arbitrary and centrally determined exchange rate in your system.

how many chits for a house of X size? for an apartment building? for a store? livestock pens? a concrete plant?

you are setting up a completely arbitrary and centrally driven exchange rate for usage types.

that's all the problems of central planning but with none of the advantages.

 
At 2/23/2012 4:42 PM, Blogger Hydra said...

i wind up paying a bunch of folks who are not harmed and harming your neighborhood without compensation.

================================

Not exactly true.

First, you get the same right to harm their neighborhood, at a price.

Second, there may still be uses that are not allowed. But suppose I am surrounded by neighors with ten acre lots, and I am stuck with a 200 acre lot. My neighbors may love the current situation, but there is no real reason why I should not have the same rights they have.

Third, the benefit or compensation comes from the sale of the chits. you only lose if you refuse to sell your chits.

Fourth, the money from the sale of the chits is taxed, so if the developer winds up paying an exhorbitant price, it helps reduce your taxes.

Fifth, you assume the people across town don't care. Just because chits are buyable does not mean people will sell. In some respects they get more leverage against undesireable things than they have now, but the price point means that they do not get infinite protection, for free, either.

 
At 2/23/2012 4:43 PM, Blogger morganovich said...

"As it is now, yu can get nimby'd to death by people from across the county, and it does not cost them ANYTHING. under myplan they would atleast have to give up the sale of their chits"

giving up the sale of a chit also costs nothing.

 
At 2/23/2012 4:50 PM, Blogger Hydra said...

how many chits for a house of X size? for an apartment building? for a store? livestock pens? a concrete plant?

===============================

I agree thereis that element of central planning, but it does not change the eventual market situation. what you are describing is the difference between buying oil with gold or dollars.

Or a Brazilian buying a condo in Miami with Reals.

I would suggest that the prices paid for chits used for varous purposes would help define how many are proper.

If there are not enough concret plants allowed, the price of chits will be high regardless. On the other hand, that plant can only make so much money: whether thre are a thousand shits to be acquired or ten thousand, he can only afford so much: if the community does not want him, he won't get the chits.

But a nice quiet Google server farm might.

 
At 2/23/2012 4:52 PM, Blogger morganovich said...

"First, you get the same right to harm their neighborhood, at a price."

that's not a benefit. it's a misalignment of incentives, especially as i would sell cheap if they promised to build it near you.

"Second, there may still be uses that are not allowed. But suppose I am surrounded by neighors with ten acre lots, and I am stuck with a 200 acre lot. My neighbors may love the current situation, but there is no real reason why I should not have the same rights they have."

what rights are you lacking?

and what didn't you know when you bought? seems like something you ought to have taken into account.

"Third, the benefit or compensation comes from the sale of the chits. you only lose if you refuse to sell your chits."

you are assuming they wind up worth more than the damage they do. i doubt that is the case.

"Fourth, the money from the sale of the chits is taxed, so if the developer winds up paying an exhorbitant price, it helps reduce your taxes."

this makes little sense. whomever builds gets gouged, someone else gets screwed, and we get government friction to boot. there is no net benefit here, just arbitrary redistribution and increased transactional costs and complexity.

"In some respects they get more leverage against undesireable things than they have now,"

not at all. you have this backwards. i want to put in a tannery. it's going to be horrible to live near.

i pick to site on opposite ends of town and set up a prisoners dilemma. sell to me cheaply and i promise to build it away from you.

 
At 2/23/2012 4:57 PM, Blogger Hydra said...

i'm not claiming either is perfect, but i think zoning determined rights are less bad than the fiat rights system you create that leaves a property owner with no predictability.

================================

You mean like the zoning changes that gradually took over a hundred building rights from me, without compensation?

You mean like the zoning rights that leave someone zoned only for buggy whip manufacturing? That's predictable.

Besides the predictability is that yu get the same opportunity as anyone else. In this cae you would rather have less opportunity and more central planning.

You could get stuck with something next to you now, and get nothing, at least this way you would get SOMETHING.

 
At 2/23/2012 4:58 PM, Blogger morganovich said...

"what you are describing is the difference between buying oil with gold or dollars."

that's not true at all.

it would be true if the government set the price of oil, gold, and dollars and thus made an a priori decision about their relative values which is how your system would work.

someone has to set the price in chits of a house or a chicken coop.

that sets an arbitrary exchange rate that will skew development in inefficient ways. that's nothing like a market.

"I would suggest that the prices paid for chits used for varous purposes would help define how many are proper."

this is a case in point. that is central planning at its most obvious.

they decide what is "proper" and distort development in a completely arbitrary way.

you think chicken farmers would not want to influence the chit price of chicken coops? this is a field day for nepotism, corruption, and cronyism.

worse, it assumes that someone, somewhere, can determine all these relative values and that they will be consistent over time, which is Utopian thinking.

 
At 2/23/2012 5:04 PM, Blogger morganovich said...

"You mean like the zoning rights that leave someone zoned only for buggy whip manufacturing? That's predictable."

that's an absurdist statement. it's pure hyperbole.

taking away zoning rights from someone SHOULD require compensation. i think that ought to be an integral part of the system.

you seem to be jousting with a straw man here.

such a requirement would be far easier to implement than the chits system you suggest. no fair proposing your own utopian system and then claiming no changes can be made a zoning system to improve it.

and this:

"You could get stuck with something next to you now, and get nothing, at least this way you would get SOMETHING."

is just untrue. that cannot happen to me now. my neighborhood is zoned. i know just what can be built near me and took it into account when a bought my house.

nor am i guaranteed to get anything. other sell their chits, THEY get something, i get to live next to a tannery. the value of my chit will not be anything like compensation for that.

 
At 2/23/2012 5:10 PM, Blogger Hydra said...

the very imposition of this system would harm the value of everyone's property assuming they wanted to keep its use the same.


================================

It is not a question of keeping THEIR use the same, is it? It is a question of keeping their NEIGHBORS use the same.

But you are right, it is all about defning property rights and defending them. You have to start somewhere. Under the Oregon plan they picked a date 25 years in the past, or as long as the land had been in one family.

Consider this scenario. whenthe county waseliminating building rights wholesale, they made the claim the rights did not really exist, since they were not platted or have a vested interest, so no payment was required.

Later, when the political ability to downzone waned, they had a purchase of development rights program in whi
ch which they would buy those same development rights, they previously claimed were worthless.

And then they give those rights away, property that was bought with tax dollars is given away to conservation groups to hold, forever. That circumvents the idea that citizens might someday elect new officials.

Finally, decades later, if someone wants to develop property that might formerly have been "By-right", now it is a zoning change and they expect you to pay to get those same rights back, that they claimed were worth nothing when taken.

Sure, there is a question of when do you start protecting property rights, but another question is why did we stop?

 
At 2/23/2012 5:14 PM, Blogger Hydra said...

what i want is a system than is known and knowable. rights are attached to the land and that of your neighbors.

================================

Me too. I would love to have those hundred lots back.

unfortunately, my neighbors who moved in since then, would claim that THEIR known and knowable rights had been destroyed.

This is exactly what happened in Oregon, when property rights taken without compensation were restored.

Bsck to square one: where and how do you start?

 
At 2/23/2012 5:16 PM, Blogger Hydra said...

My plan boils down to having the most people involved, and having them put their money where their mouth is.

The arguments against my plan suggests that most people want nothing like a free market, and especially not a level playing field market.

 
At 2/23/2012 5:25 PM, Blogger morganovich said...

"It is not a question of keeping THEIR use the same, is it? It is a question of keeping their NEIGHBORS use the same."

and under zoning, this is far more predictable. with chits, well, anything can happen. if you feel that living next to a tannery does not reduce the value of your home, i have some real estate agents to introduce you to.

your oregon example just seem like a set of terrible and arbitrary government behavior. it's a reason to better codify zoning rights and attach them specifically to land.

it seems like the whole mess could have been avoided by doing that well in the first place.

well defined rights are they key to making any market work. on this it seems we agree.

to my mind, most of the problems stemming from zoning come from a failure to do this.

coase had a great deal to say about setting up rights structures.

one of his key issues is the amount of friction in a system.

if i do great and easily defined harm to one person, we should handle it directly between us, not through regulation. but if i do small harm to many, the friction it too great for each to seek redress from me (especially if the harm id difficult to prove or quantify) so, if you seek to mitigate such harm, regulation might be the better course.

my concerns around a chit system center on the transactional friction it would create and the manner in which it arbitrarily sets values for types of use and the way it misalignes incentives (eg, i sell cheap if they promise to put the tannery on your side of town) combined with the lack of predictability it creates about my own rights and the fact that if it takes 100 chits to build a tannery, my one is poor compensation for the one that gets built next to me. if the harm is 100, my redress is only 1% unless i can seek out an even more noxious sort of use and sell to him, which seems like a race to the bottom.

 
At 2/23/2012 5:31 PM, Blogger morganovich said...

"The arguments against my plan suggests that most people want nothing like a free market, and especially not a level playing field market."

i don't think your plan is anything like a free market.

inherent in it is governmental determination as to the relative value/costs of various uses.

further, it abrogates that key principle of a free market, known and knowable rights. i need to know what your rights are as well as mine to price my property. to the extent that they are changeable based on chits, it becomes very uncertain.

it just moves the battlefield to chit pricing for use instead of zoning.

the tannery guild pays off the county government, gets the price dropped bug, builds a bunch of plants, then gets the price hiked again to prevent competition.

it would work just like oregon and the same folks would get bought off, just in a different way.

the city councilmen could make all development near their home 10X the price of anywhere else and get nice, open lots around them. they could then buy them cheaply, and cut the chit price.

if anything, it seems more prone to corruption.

price fixing is not a level playing field nor a free market.

 
At 2/23/2012 5:38 PM, Blogger morganovich said...

"unfortunately, my neighbors who moved in since then, would claim that THEIR known and knowable rights had been destroyed.

Bsck to square one: where and how do you start?"

well, at this point given the conflict, perhaps you do it like this:

pick a set of rights to use going forward.

if you had more rights than that when you bought, you get compensated for their loss.

if you had fewer, either you get a windfall, or you pay, depending on what can be managed politically.

setting that price is a bit arbitrary, but ought to be manageable through reasonable arbitration.

if 10 acre lots are worth X and you have 200 acres that once could have been 10 acre lots, you take market price now (based on comps or whatever) for your property (perhaps with a requirement that the county be willing to buy at the price they set or have a legitimate bid) and compare it with the price of 20 10 acre lots and set compensation at the difference.

i suspect you'd wind up better paid that way that with chits, and the system would then be known and knowable going forward.

 
At 2/23/2012 5:38 PM, Blogger Hydra said...

"Government has taken millions out of my pocket, at the behest of others who have sold a false vision of costs to the community, and who benefited their property rights at the expense of mine. "

And yet...and yet STILL, you believe that government regulation and tyranny of the majority are good things. What happened to TC = PC+ EC + GC? I thought that always produced the best outcome.

===============================

Precisely. under my plan i would have gotten some kind of compensation rather than none.

The way things are calculated now, those building rights wee taken from me with the argument that homes there woudlcost the county budget money.

By law, county officials my not consider private costs in the effect to the county budget.

But, had the Total Cost equation been used, they would have had to jsutify my losses [external cost] against the counties gains, leading to a lesser likelihood that the lowest Total Cost was achieved.

Under a Chit system, maybe they would have to give me the going price for those lots in chits, which I culd sell or use elsewhere, instead of winding up with nothing.

When I decide to sell and get out, I would be worth MORE under a chit system, because a developer buying the place would know that AT SOME PRICE it would be developable.

Instead, the value is permanently pegged by the net present value of the future profits from 20 years of soybeans, or some such. No matter how conditions change around me.

Under my plan there is some risk, but it comes with opportunity as well.

The county (or rather certain ploitical interests) have wildly over blown and inaccurate estimates of what they claim the county is saving by taking my building rights. If they would pay me 5% interest on what they claim they are saving by taking or borrowing my proerty, then I would stop complaining.

Sounds fair to me, but as long as they can get it for nothing, why should they pay? My plan would ensure that they paid, because myproperty rights would be equal to anyone else's, again.

 
At 2/23/2012 5:43 PM, Blogger Hydra said...

i don't think your plan is anything like a free market.

================================
Neither is a free market, which is why we have never seen one. My plan at least has some market attributes.

I freely admit the failures or weakness in my ideas, and you do not. That means my ideas will be improved, and your hypotheticl and perfect free market will remain hypothetical, where its flaws can never be exposed.

 
At 2/23/2012 5:51 PM, Blogger Hydra said...

if 10 acre lots are worth X and you have 200 acres that once could have been 10 acre lots, you take market price now (based on comps or whatever) for your property (perhaps with a requirement that the county be willing to buy at the price they set or have a legitimate bid) and compare it with the price of 20 10 acre lots and set compensation at the difference.

================================

Wouldn't the person with chits know the value of ten acrre lots as well or better than some central authority that would decide my price?

Whoever eventually bought my place would have to consider what he would pay me for the proerty and everyone else for the chits to use it.

But in the meantime, I would have a stream of income from selling my chits. I would have the same opportunity to capitalize on community growth as anyone else.\

Even If my property remained off limits due to zoning, that amounts to as subsidy to the designated urban growth areas. (Those rural subsidies cut both ways) My stream of chit income could be compensation for that.

 
At 2/23/2012 5:56 PM, Blogger Hydra said...

pick a set of rights to use going forward.

if you had more rights than that when you bought, you get compensated for their loss.

if you had fewer, either you get a windfall, or you pay, depending on what can be managed politically.

setting that price is a bit arbitrary, but ought to be manageable through reasonable arbitration.

================================

I agree.

Oregon tried something like that, and they got shot down by immense flows of political contributions from NIMBYs and environemtnal groups from outside the state.

All I can tellyou is I figure I have zero chance of compensation in my life time, and one reason is that the savings they claimed never existed.

But even If I d get compensated, the same people will no doubt try to claw the rights back out of my estate.

Just like happened to that Oregon woman.

 
At 2/23/2012 6:05 PM, Blogger Hydra said...

setting that price is a bit arbitrary, but ought to be manageable through reasonable arbitration.

=================================
Why should it be arbitrary? Let the market decide. like I said, I would take a small percentag of the cash stream they claim they are saving.

I'll bet you that if that was the deal, they would suddenly be projecting a much smaller saving.


The point is that proerty rights would be protected, which they are not now. In fact, the very kind of property we are talking about now, does not formally exist.

If I had development rights, I can sell them only to the county.

Otherwise I would sell them to someone who wants to put a HIP HOP club next to my supervisors home.

Those rights first need to be codified, written down, and attacked to the deed. Which gets us pack to so much for skating rinks, so much for car lots, etc.

We need more rights and better protection of them. Paradoxically, it will take more government to do that.

 
At 2/23/2012 6:06 PM, Blogger morganovich said...

h-

my point is that it is, in many ways, less of free market than rights attached zoning and more prone to corruption.

i think you are erecting a bit of a straw man there.

further, i have already numerous times admitted the failures of current systems. like you, i am looking for a way to improve them.

it's never going to be perfect. i just thing the relative merits of rights based zoning outweigh those of tradable chits. you seem to be arguing that i am trying to hold up some utopian idea, but i'm not.

i'm just looking for the simplest way to value rights and get predictable outcomes.

my point is that your system takes away more market attributes than it provides.

freely tradable chits whose value is set and can be altered at any time by a central authority is a step away from a free market, not towards it. sure, the chits trade, but only subject to price fixing in terms of use. you pay market price to buy them, but spend them at arbitrarily set rates. it's far more distorting and corruptible and could lead to some very nasty cartel formation and set up a prisoners dilemma for noxious uses.

misprice chicken coops (in chits) relative to cow grazing and you get market distortion. it's also a much more complex and thus opaque system than zoning. people notice a zoning change. they may not see the hand of special interest in chit pricing resets or ever really notice them until it's too late.

imagining that a central authority can set the price for 100's of uses relative to one another in any kind of even rudimentarily accurate fashion seems like a stretch to me. you're going to get all manner of unintended consequences, which will lead to demands for rewieghting which will become a special interest circus.

 
At 2/23/2012 6:12 PM, Blogger Hydra said...

Don't get me wrong, this snt about me. It just happens that it is a situation I know best. I just think it is and instructive example. Things here will eventually change, but if there was some kind of market driven element to where the regulatons are set, then it might change sooner, and be more fair over time.

If the county wants to zone me,and put me in the business of scenery and family agriculture, I'm OK with that. But then, they need to ensure that I have enough paying customers that I can get a reasonable share of the growth and other benefits that the county achieves.

Well, now, we can't have that: that would be subsidies and socialism.

 
At 2/23/2012 6:20 PM, Blogger morganovich said...

"Why should it be arbitrary?"

all real estate comps are a bit arbitrary as no 2 properties are the same.

that's why i suggested possibly requiring the country to put in or solicit an bona fide bid to value your land. that would make it non arbitrary. if you thought they overvalued it, you could put it to them.

"We need more rights and better protection of them. Paradoxically, it will take more government to do that."

i'm not sure i agree with that. we need better codified rights that cannot be taken without compensation. there, i think we agree. but why does that require more government? it takes one law. then lots of government (the clowns playing games now) can go away.

such rights take power from government and restore it to individuals. i may be just arguing semantics with you, but that does not seem like more government to me, but rather more limits on government and protection for individuals.

"Those rights first need to be codified, written down, and attacked to the deed. Which gets us pack to so much for skating rinks, so much for car lots, etc."

i'm not sure that's so. such uses are already allowed under certain zoning. thus, you need not value it as the buyer already did. just codify them better and move on.

what's more, the adjacent buyers knew what they were too and so paid for their land knowing someone could put in a store, but not a tannery.

it seems much simpler to me to attach clear rights to the land and make it one tradable non severable asset. this is a 1 acre lot zoned for a house of up to 6000 square feet up to x above grade etc. it's surrounded by other lots with known characteristics.

now, you have a very definite thing to value and clear rights the taking of which you must be compensation for or, preferably give approval of.

"If I had development rights, I can sell them only to the county.

Otherwise I would sell them to someone who wants to put a HIP HOP club next to my supervisors home."

this seems like a misalignment of incentives to me. do you really want an arms race of selling permits to annoy others?

and what of the prisoner's dilemma i outlined?

morganovich hog rendering has selected 2 potential sites for its plant. i'll pick them based on a map of who has chits and put them right near big piles of them.

now, it's a race. who will sell them to me for the least to get it on the other side of town? i'm holding both neighborhoods hostage and playing them off each other and, contrary to the intentions of the system, i can get them cheaper precisely because what i plan to do is something no one wants to be near.

how do you get around that?

 
At 2/23/2012 6:21 PM, Blogger morganovich said...

"If the county wants to zone me,and put me in the business of scenery and family agriculture, I'm OK with that. But then, they need to ensure that I have enough paying customers that I can get a reasonable share of the growth and other benefits that the county achieves."

it seems to me that the simpler and easier solution that avoids socialism is just to pay you for the rights they took.

 
At 2/23/2012 6:41 PM, Blogger Hydra said...

i'm just looking for the simplest way to value rights and get predictable outcomes.

But in a market there ae no predictable outcomes.


I like your plan, i liked the Oregon Plan.

Maybe someday it will happen.

But I think it willhappen by investigating real conequences to real people before it will happpen by flapping our hands and saying only the hypothetical free market is perfect, amporal, all knowing and perfectly efficient.

Unfortunately, such a thing would have to be run by actual people who are none of the above.

 
At 2/23/2012 7:35 PM, Blogger Ron H. said...

"Central planning decides at a gross level how much building development they can allow without destroying the capital budget. That seems like a legitimate use of central planning. "

There is no legitimate role for central planning, period. Look around you.

Where do you find successful central planning that isn't voluntary.

At least you are admitting your love of central planning. That's an improvement.

There must be some group of really smart people in charge who know better than we do what's in our best interest.

 
At 2/23/2012 11:39 PM, Blogger Ron H. said...

"No one wants new homes built on that nice vacant woodlot next door. "

No one? How about the owner of the property? What do they want?




"Some people do not want their schools overcrowded, some people are just opposed to change. They do not want development so they just hold on to their chits.Now, assume that development rights are not owned by the county, but by the people of the county. "

Wait! How could County own any property rights at all? Isn't the role of County to represent the people who live within the county?

You really have some bizarre ideas.

 
At 2/23/2012 11:58 PM, Blogger Ron H. said...

"i don;t see the functional difference:"

No, I don't suppose you would.

"What I suggest is identifying those interests, and creating new property rights which depend on those interests, and then letting those rights be bought and sold."

And who is in charge of identifying and setting up? Well, central planning, of course. this is not a market as we know it.

"Right now, the county government owns the right to build, and they dole them out on an individual basis, depending on how much screaming from the adversarial public, personal predilections, who you know, and what gest paid under the table or through the PACS."

And this is the type of organization you think should govern you on a much grander scale!

Actually the county doesn't own any rights, it infringes your right, and permits you to build at someones whim.

Depending, of course, on what actual properrty rights are included in your land ownership.

 
At 2/24/2012 12:17 AM, Blogger Ron H. said...

"You need to learn some history. there are plenty of cases where people carefully built a loyal following, established trust, and then cleaned out the till and disappeared."

And more recently a forest of regulations has eliminated this problem, so it no longer happens.

LOL! You are hilarious.

 
At 2/24/2012 12:23 AM, Blogger Ron H. said...

"Actually, it doesn't. It is not written into your deed, and it can be revoked at any time."

You don't understand property rights.

"Living in an area that has been downzoned six seprated times, I can assure you that the right to build does NOT come with the land."

That your rights have been infringed doesn't mean they don't exist, or that someone else owns them.

You appear to be the victim of serious tyranny, and yet you call for more. Amazing.

If someone else can take your land, including the rights that are included with it, then it isn't really your land.

 
At 2/24/2012 12:32 AM, Blogger Ron H. said...

"You can always go across town and buy chits yourself, or you can buy your neighbors land."

I can already buy my neighbor's land if he wishes to sell it. No chits required.

"itis a free market after all."

No, but it should be.

"If building rights come with the property, then I should have known that, and the price of my property would be reflected. If he is getting new rights that actually diminish the value of my property then I should be compensated."

You're not being clear, but if you mean you should know what rights your property includes, I wholeheartedly agree. So, why don't you?

If you mean you should know what rights your neighbor's property includes, then again, I agree. It's a matter of public record, so go find
out.

 
At 2/24/2012 12:41 AM, Blogger Ron H. said...

"You should understand that there already are structured markets which work just this way."

That's only a small part of your problem, but in any case, name one.

Don't confuse exchanges with markets. An exchange provides a convenient and efficient venue for trading, but everything sold through an exchange can also be sold outside of it.

 
At 2/24/2012 12:44 AM, Blogger Ron H. said...

"Yes there are problems, but my plan offer smore ways to solve them, and with a larger body of people involved. Or would you prefer a central authority?"

Do you believe those are the only two choices? Your way or central planning? How sad.

 
At 2/24/2012 12:53 AM, Blogger Ron H. said...

"If there are not enough concret plants allowed..."

Reread that carefully. What IS the right number of concrete plants, or anything else, for that matter? Who decides? You are missing some important economic concepts here.

 
At 2/24/2012 1:11 AM, Blogger Ron H. said...

"Under a Chit system, maybe they would have to give me the going price for those lots in chits, which I culd sell or use elsewhere, instead of winding up with nothing."

You are no more likely to be treated fairly under your silly system than you were under the current system.

In any case, you haven't actually suffered a loss until you sell. You're talking about "could have been".

 

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