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Poor statists! If we close our eyes tightly enough, we can see clearly that Corporations are innocent VICTIMS, of governments that foist on them meaningless grants like limited liability & IP, and of malevolent, grasping citizens

May 10th, 2010 1 comment

I pulled out my peashooter the other day and levelled a few criticisms (“Risk-shifting, BP and those nasty enviros“) at  Lew Rockwell‘s Feel Sorry for BP?.  I don’t imagine that Lew noticed, but my buddy Stephan Kinsella did.

I have long noted the reflexive defense of corporations by prominent Austrians and the stubborn unwillingness to closely examine the role that the special grants to corporate investors that lie at the core of the problem of snowballing corporate statism, spiralling politicized rent-seeking battles, incompetent government and concupiscient and grand-standing politicians. So Stephan’s comments come as no surprise:

1.  Stephan chooses to set the stage with a bunch of labels –  “enviro-global-warming anti-corporation libertarian”. Whatever makes you happy, Stephan. I know you and others have a hard time resisting the urge, which is why I often playfully sign off as the resident friendly enviro fascist! Nah, couldn’t possibly be a “real” libertarian.

On corporations, the “environment”, and climate – as on central banking, fiat currency and the whole mess of banking and capital markets regulation – I’m simply anti-un-contracted-for-risk-shifting-and-government-enabled-moral-hazard and arguments against rent-seeking that ignore existing special deals.

But if it’s easier, just keep calling me”anti-corporation” and continue to lump me in with “enviro-fascists”.

 2.  I had wondered: 

Even if one concedes that some criticisms of BP will be unfair, how can BP possibly be cast [by Lew] as the LEADING victim – as opposed to all of the others whose livelihoods or property are drastically affected by this incident, which they had no control over whatsoever?

Stephan’s lame response?

BP is a victim in the sense that a terrible tragedy just happened to it, and it’s gonna cost it dearly. It’s the leading victim assuming the others damaged are going to be compensated from BP. The point is it’s a bad thing that’s happened to it.Why not feel sorry for them?

Really, Stephan?  BP deliberately measures and takes risks as part of its business; no one else who has been or maybe injured had a clear concept of such risks or either assumed them or had any ability to control them. Clearly, BP is the one that has interfered with others’ use and enjoyment of their own property, of common property and of government-owned property; in law, we call them “tort-feasors”.  They are not a “victim” in any sense that we commonly apply in situations like this. Empty word games like yours turn reality in its head. Right, Toyota is a victim when its cars’ brakes have problems, TVA is a “victim” when its coal fly ash dams break, and so are others who “unintentionally” injure the health or damage the property of others – when latent risks materialize or they are caught at it and suffer some economic loss as a result.

It’s hard to believe you want to further support Lew’s absurd claim that BP is the leading victim now – we simply have assume that in the future, BP or someone else will throw some compensation at all of those other unworthy, insignificant passive victims. Nice.

Sure, it’s too bad that this happened, all around. BP gambled (heroically?) to make money; everyone has lost. Poor BP!

3. Lew: “The incident is a tragedy for BP and all the subcontractors involved. It will probably wreck the company”


The incident will certainly be costly for the firms involved, but the firms will survive the death of employees, and there is certainly very little risk indeed that BP will be “wrecked” by the spill. Far from it; it is unlikely that BP will even bear the principal costs of cleanup efforts, much less the economic damages to third parties that federal law apparently caps at $75 million.

Have you not heard of “INSURANCE”? A little thinking (and Googling) would tell you that BP (and its subcontractors) has plenty of it. To the extent BP is NOT insured, it has ample capability to self-insure, unlike all of the fishermen, oystermen and those in the tourist industry who are feeling significant impacts. Insurers will bear the primary burden, not BP.


Obama has threatened BP and they have caved in, agreeing to pay above the $75M cap. And the cap was in exchange for a tax on oil companies to be put into the Oil Spill Liability Trust Fund for such emergencies–do you think that BP will be able to get that tax refunded? Naah.

Sounds like you’re agreeing that this incident is unlikely to “wreck”BP, given insurance, self-insurance and the $1.6 billion Oil Spill Fund. But it sounds like you also are suggesting that BP has every right to negotiate with government for liability caps. Interesting.

4. Lew:   “we might ask who is happy about the disaster: 1. the environmentalists, with their fear mongering and hatred of modern life”


Sorry, but this is perverse: enviros might feel that they have been proven right – and you might be annoyed that they can make such a claim – but they certainly aren’t “happy” with any of the loss of life, damage to property or livelihoods of the little guy (or of bigger property owners), or to a more pristine marine environment that they value.


Aren’t happy? Have you seen, say, Spill Baby Spill, Boycott BP! ? And another tolerant, caring liberal on Slate’s Political Gabfest Facebook page said, “I don’t get the calls for pity. Boohoo another oil giant might have bankrupted itself.” These misanthropic sickos oppose nuclear power, which makes fossil fuels necessary. They act like they hate BP. Why? For making a mistake? Mistakes are inevitable. For drilling for oil? Why? We need oil.

Let me repeat: some might feel vindicated and be eager to use this incident to bash BP, etc. – people/firms certainly are fighting over government – but that doesn’t make them “happy” that disaster has occurred.

You apparently missed it, but there were plenty of “misanthropic sickos” on Lew’s comment thread who expressed thoughts similar to “I don’t get the calls for pity. Boohoo another oil giant might have bankrupted itself.”

The rest of this is also packed with nonsense.  Funny that Austrians fail to overlook that enviro opposition to nukes and to other fossil fuels is more than a little related to government’s dirty role in the industries, including liability caps like those present here. Do Austrians “hate” banks, securities firms and AIG for making “mistakes”? But aren’t mistakes “inevitable”? And don’t we need lenders and insurers? And a domestic auto industry?

Just what do these utilitarian arguments have to do with libertarian principles, anyway?

5.   Me:

[Lew’s] projection of happiness at damages to common resources/private property and hatred of modern life is especially perverse, given your own explicit recognition that government ownership/mismanagement of commons, and setting of limits on liability both skew the incentives BP faces to avoid damage, and limit the ability of others (resource users and evil enviros) to directly protect or negotiate their own interests. Why is the negative role played by government any reason to bash others who use or care about the “commons”?

Stephan: No libertarian is in favor of liability caps. What is he talking about?

Simple, Stephan. Lew explicitly recognizes that government has screwed up  the ability of enviros and others who have conflicting preferences about the use of resources to engage in voluntary transactions that would advance mutual welfare – yet he chooses to bash those whose preferences are frustrated by government, while feeling sorry for those whose preferences are favored. What is remotely even-handed – or Austrian – about this imbalance? Is it simply that it’s okay for those who make omelets to take eggs from others, since the omelet “makers” are being “productive”?

6.  Me:

We have seen Austrians – sympathetic to the costs to real people in the rest of the economy – rightly call for an end to a fiat currency, central banking and to moral-hazard-enabling deposit insurance and oversight of banks. In an April 9 post by Kevin Dowd on the financial crisis, we even had a call “to remove limited liability: we should abolish the limited-liability statutes and give the bankers the strongest possible incentives to look after our money properly” – but Dowd’s comments simply echoed in the Sounds of Silence. Why do you and others refuse to look at the risk-shifting and moral hazard that is implicit in the very grant of a limited liability corporate charter – not only in banking, but in oil exploration and other parts of the economy?


Removing artificial caps on liability has nothing to do with the limited liability of passive shareholders in a corporation. Their liability is limited simply because they are not causally responsible for the torts of employees of the company in which they hold shares.

I suspect this is the key reason why Stephan troubled himself to respond, but surely he can see it is not only counterfactual, but dodges any consideration of the consequences of limited liability in terms of fuelling industrialization and fights over using government to check corporate excesses. Investors then and now deliberately choose to conduct business activities through corporations precisely because government absolves owners from any liability in excess of enterprise assets.  While it is possible for voluntary counterparties (employees, lenders and others doing business with the firm) to agree in advance to limit their resources solely to enterprise assets, those who are injured by acts of companies or their employees and agents do not in advance choose the nature of the those who are responsible for harming them. Accordingly, the broad blanket grant of limited liability to corporations is clearly anti-libertarian.

Accordingly, dividends received by shareholders from risky activities are not clawed back if risks are realized and claims exceed corporate assets. Further, shareholders are given disincentives from too closely directing manage risk (for fear of claims that they have direct responsibility for torts). When combined with other corporate attributes (unlimited life & purposes, relative anonymity of ownership, remoteness of owners from communities in which the firms operate, and ability of powerful firms and wealthy investors to influence judges, legislators, bureaucrats and other officials), we have seen a steady erosion of common law and growth in the regulatory state – as citizens fight to limit the risks and costs that corporations impose on individuals and communities. Is Stephan unaware of the central role of corporations in rent-seeking battles? In the perversion of the 14th Amendment – designed to protect emancipated slaves and Chinese coolies – into a weapon to elevate corporations over the states, and to permanently shift power to the Federal government?

Just as most commentators overlook the massive moral hazard and risk-shifting that is part and parcel of the federal oversight of banking (necessitated by deposit insurance and fractional banking), so do Stephan and Lew insist on keeping their eyes closed to the legacy of risk-shifting, statism and escalating fights over increasingly incompetent and corrupt government. Why?

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The Curse of Limited Liability; Executives/traders of big financial corporations generate risky business, while smaller partnerships are much more risk averse

February 26th, 2009 No comments

The February 25 Wall Street Journal carries an insightful piece of commentary by James K. Glassman (president of the World Growth Institute and a former undersecretary of state) and William T. Nolan (president of Devonshire Holdings and former associate at Brown Brothers Harriman & Co. in the early 1970s) .

The Glassman and Nolan piece, entitled Bankers Need More Skin in the Game; Partnerships may be a more trustworthy business model than corporations,” echoes in the context of Wall Street financial institutions the theme of inappropriate managerial risk-taking that I have previously blogged on a number of times regarding the consequences of  the “limited liability” corporate form.  Glassman and Nolan point to the sterling performance of Brown Brothers Harriman & Co., the oldest and largest partnership bank in the U.S., founded in 1818.

The Glassman and Nolan editorial is worth reading in whole, for purposes of discussion I excerpt portions here (bolding is mine):

“Of all the causes of the financial meltdown of the past few years, the easiest to understand is that an irresponsible attitude toward risk led to terrible mistakes in judgment. But where did this casual approach to risk originate?

A major culprit, we believe, is a change in the way Wall Street financial institutions are organized. During the late 1970s and ’80s, much of the responsibility for risk was transferred away from the people who made the financial decisions. As a result, leverage rose from 20-1 to 40-1 or higher, creating shaky towers of debt, which, as we know, eventually collapsed. …

“The trick is to find a way to encourage sensible risk-taking, while dampening the impulse to take chances that can throw an economy into recession and force taxpayers to bail out a banking system.

Can government accomplish this feat through rule-making and regulatory oversight? It is unlikely. As the Nobel Prize-winning economist Friedrich von Hayek correctly emphasized, no one — not even a politician or a bureaucrat — can gain the broad and deep knowledge necessary to make wise enough rules. Moreover, in a $14 trillion economy, you can’t hire enough overseers to pore over everyone’s books.

There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you’re less likely to take the kinds of risks that expose the rest of society to your failures.

“A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren’t protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. …

“Even John Gutfreund — the man who kicked off the dramatic change in investment-banking culture and structure when he took Salomon Brothers, a longtime partnership, public in 1981 — confirms our thesis. Michael Lewis wrote in the December issue of Condé Nast Portfolio that Mr. Gutfreund now believes “that the main effect of turning a partnership into a corporation was to transfer financial risk to the shareholders. ‘When things go wrong, it’s their problem,'” said Mr. Gutfreund.

“But when the personal wealth of executives is put at risk, as it is in a partnership, their behavior changes. Risk aversion increases. Few partnerships would leverage themselves to the hilt to load up on risky subprime loans.

“How do we know this? Luckily, for this financial experiment, there is a control case: Brown Brothers Harriman & Co. ….

“Some would say that BBH is sui generis. Would its structure work more broadly for financial institutions? It already is. As large brokers merged into huge corporations with greater concentration in real-estate finance, corporate finance migrated to private equity firms and hedge funds, which are generally structured as partnerships. While many of these new engines of finance have suffered in the recent meltdown, they generally didn’t engage in such extreme risk-taking and thus haven’t become wards of the state.

“We know from Alfred Chandler, the great business historian, that “strategy determines structure.” Similarly, structure determines behavior — in this case, a healthier attitude toward risk. It is unlikely that a partnership will grow to the size of a Bank of America or Citigroup, but, while size can boost efficiency, it also poses systemic risk. As partnerships — and corporations with partnership attributes — replace behemoths, the current crisis will spawn structures for future success.  …

We do not believe that government should require banks to be partnerships. Rather, investors — and governments — should recognize the extra safety inherent in doing business with partnerships.

I have previously argued that one of the key state interventions that has fuelled the rent-seeking and risk socialization that we see today is the grants of blanket limited liability to shareholders, along with the grant of legal personhood (with unlimited purposes and life and Constitutional rights) to corporations:

Limited liability has enabled corporate managers to act without close shareholder oversight and management; this I believe has played a key role in the vast misalignment of incentives that Michael Lewis and David Einhorn describe at the NYT, and in the risk mismanagement that Joe Nocera of the NYT describes at length in the NYT Magazine.  Those taking large bonuses (whether in the financial industry or large corporations) were essentially playing with OPM – Other People’s Money – and capturing the upside of short-term gains while leaving shareholders and taxpayers holding the bag for loses.

I hope that you and others here will look more deeply at the role of the state in the problem of misaligned incentives that continue to corrupt American capitalism.

It is not clear what Glassman and Nolan intend with their reference to “corporations with partnership attributes”, but I would note that corporations that make use of an unlimited liability structure (as American Express once did) share the main “partnership attribute” – that the owners of the firm may be, if the assets of the firm are insufficient, personally liable to creditors for all debts of the firm (other than those whose creditors agree in advance to limit recourse), particularly for torts to involuntary third parties.  The availability of the unlimited liability corporate form in various jurisdiction should be further investigated.

I agree with Glassman and Nolan that governments should recognize the better risk management that partnerships are likely to conduct, but not merely in the financial sector but in other industrial, commercial and professional fields as well.   Such recognition could take the form of eased regulations, for example.  I favor aggressive pursuit of this “carrot” approach to encouraging better risk management and less shifting of risks to shareholders, government and citizens generally.  However, this fails to consider what should be done about existing public companies and other limited liability corporations.  I would urge more aggressive veil-piercing, both judicially and by statute.

In any case, it is gratifying to see this topic getting some of the attention that it deserves.

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Note to William Anderson: Limited liability is a key to understanding the Great American Ponzi scheme

January 5th, 2009 No comments

William Anderson (an adjunct scholar of the Mises Institute and economics prof. at Frostburg State University) has a thoughtful New Year’s Day post, pointing out how Paul Krugman fails to understand the causes of ouir economic stagnation and financial meltdown.

I posted the following comment, in which I argue that the state grant of limited laibility (which I have discussed in several recent posts) is a key to understanding the Great American Ponzi scheme:

Bill, I agree with the thrust of your criticisms of Krugman, but have a few small quibbles.

First, while you rightly condemn “most economic regulation … of the command-and-control variety”, you blame all of this on “the whims of bureaucrats and environmentalists” and completely fail to note that state and federal environmental regulation (i) initially responded to real environmental problems and (ii) also represents the successful efforts by established firms to raise barriers to entry and to cartelize their industries.  See Roger Meiners & Bruce Yandle, Common Law and the Conceit of Modern Environmental Policy, 7 Geo. Mason L. Rev. 923, 926-46 (1999), and Walter Block, Environmentalism and Economic Freedom: the Case for Private Property Rights..

Second, while you are correct that Krugman fails to understand the role of the state in creating the distortions that underlie our current problems, it seems to me that you have neglected one of the key state interventions that has fuelled the rent-seeking and risk socialization that we see today – the grants of legal personhood (with unlimited purposes and life and Constitutional rights) to corporations and blanket limited liability to shareholders.

Limited liability has enabled corporate managers to act without close shareholder oversight and management; this I believe has played a key role in the vast misalignment of incentives that Michael Lewis and David Einhorn describe at the NYT, and in the risk mismanagement that Joe Nocera of the NYT describes at length in the NYT Magazine.  Those taking large bonuses (whether in the financial industry or large corporations) were essentially playing with OPM – Other People’s Money – and capturing the upside of short-term gains while leaving shareholders and taxpayers holding the bag for loses.

I hope that you and others here will look more deeply at the role of the state in the problem of misaligned incentives that continue to corrupt American capitalism.

Limited liability produces both pollution and political meddling: Block on Environmentalism

December 23rd, 2008 No comments

In my recent post on limited liability, I argued that one of the perverse consequences of limiting shareholder responsibility for corporate torts was to create the moral hazard by which investors could capture the upside of risky activities that imposed costs on others, without having to worry about whether the harms such activities may impose on others exceeded the benefits to the firm. 

This dynamic can be clearly seen in the historical growth of various environmental torts, which expanded as courts, taking a signal from government policy to favor industry, turned away from a strict enforcement of property rights.  The result was massive pollution, which enriched corporate owners while transferring costs to others.  The further result?  The massive resort to federal regulatory approaches that further undermined property rights, not only by dictating to industry but by giving firms that complied with regulations a “right to pollute” within such bounds, regardless of harms caused to others.

Walter Block captures some of these dynamics in his excellent piece on the need to return to a property rights approach to environmental harms,  “Environmentalism and Economic Freedom: the Case for Private Property Rights”, Journal of Business Ethics 17: 1887–1899 (1998).  An excerpt is below (emphasis added):

But then in the 1840s and 1850s a new legal philosophy took hold. No longer were private property rights upheld. Now, there was an even more important consideration: the public good. And of what did the public good consist in this new dispensation? The growth and progress of the U.S. economy. Toward this end it was decided that the jurisprudence of the 1820s and 1830s was a needless indulgence. Accordingly, when an environmental plaintiff came to court under this new system, he was given short shrift. He was told, in effect, that of course his private property rights were being violated; but that this was entirely proper, since there is something even more important that selfish, individualistic property rights. And this was the “public good” of encouraging manufacturing.

Under this legal convention, all the economic incentives of the previous regime were turned around 180 degrees. Why use clean burning, but slightly more expensive anthracite coal rather than the cheaper but dirtier high sulfur content variety? Why install scrubbers, and other techniques for reducing pollution output, or engage in environmental research and development, or use better chimneys and other smoke prevention devices, or make locational decisions so as to negatively impact as few people as possible? Needless to say, the incipient forensic pollution industry was rendered stillborn.

And what of the “green” manufacturer, who didn’t want to foul the planet’s atmosphere, or the libertarian, who refused to do this on the grounds that is was an unjustified invasion of other people’s property? There is a name for such people, and it is called “bankrupt.” For to engage in environmentally sound business practices under a legal regime which no longer requires this is to impose on oneself a competitive disadvantage. Other things equal, this will guarantee bankruptcy.

From roughly 1850 to 1970, firms were able to pollute without penalty. This is why “there is no way to force private polluters to bear the social cost of their operations” a la Pigou; this is why there was a Samuelsonian “divergence of social and private costs.” This was no failure of the market. It was a failure of the government to uphold free enterprise with a legal system protective of private property rights.

In the 1970s a “discovery” was made: the air quality was dangerous to human beings and other living creatures. Having caused the problem itself, the government now set out to cure it, with a whole host of regulations which only made things worse. There were demands for electric cars, for minimal mileage per gallon for gasoline, for subsidies to wind, water, solar and nuclear power, for taxes on coal, oil, gas and other such fuels, for arbitrary cutbacks in the amount of pollutants into the air. The nation wide 55 mile per hour speed limit was not initially motivated by safety considerations, but rather by ecological ones. “Rent seeking” played a role in the scramble, as eastern (dirty burning sulfur) coal interests prevailed over their western (clean burning anthracite) counterparts. The former wanted compulsory scrubbers, the latter wanted the mandated substitution of their own coal for that of their competitors.

FN 23. From 1845 to 1970, approximately, polluters had a free run of the atmosphere, other people’s property and their lungs. From roughly 1970 to 1995, and counting, there was concern for invasive air and water borne pollutants, but only command and control (and in the last few years tradeable emissions rights schemes) regulations. Provision for environmental lawsuits is still, as of this 1995 writing, virtually nonexistent. See Horwitz (1977), Block (1990, pp. 282–285).

Yes, Tom Woods; Corporations ARE Unlibertarian. And the Massive Regulatory State and Rampant Crony Capitalism Are the Result.

June 12th, 2015 4 comments

[Note: this started as a Facebook post, which is also open for comment.]

I have been bugged by friends to share some thoughts on the recent discussion (January 2015) between Tom Woods​ and Stephan Kinsella on the “libertarian-ness” of corporations, which was held on the Thomas Woods​ Show, and which they have respectively posted, with supporting references:

I’ve had countless discussions with Stephan on this topic, chiefly when the Ludwig von Mises Institute ran an open blog; many great conversations were lost when LvMI closed down the blog, but the interested reader can find some of my own conversations here (I backed them up to a personal LvMI blog, and further migrated them when those too were closed by LvMI):

Here are a few thoughts that I shared privately with someone, both in advance of listening to Stefan and as the talk show proceeded:

He’s missing how the state provision of the legal entity structure, and especially the limited liability aspect, has, by risk socialization flowing from shareholders’ incentives to turn a blind eye (to NOT be involved in decisions that hurt others) fuelled the growth of the snowballing and ever-more captured regulatory state.

He mis-states here completely how corporations came about — they were all one-off, special purpose and limited-duration monopolies created in the public interest, not charters that the government let you file that were just like limited partnership agreements.

I am happy that he says state incorporation statutes (and government-made corps, presumably), should be done away with.

His statement that legal entity status is a convenience for the benefit of creditors is basically hogwash — without entity status, creditors could sue ANY (all if they wanted) partners and employees, and let THEM either bring others in as co-defendants or let them work out indemnification arrangements. Entity status is not favor to creditors.

He’s finally making some of the arguments that I did years back — that the favors granted in creating corporations are an excuse/justification for endless meddling by governments in business affairs.

I’ve proposed marked deregulation of non-corporate businesses and of corps whose owners keep a risk tail (i.e., in the case that equity is only partially paid-in, so that directors would have a capital call on shareholders if claims were to exceed assets), but Kinsella instead is trying to say that all government “favors” are meaningless, so government regulations of the corporations they create were never justified. —

It’s an argument that entirely ignores the easily accessed history of harms that, because corporations were made in the “public interest”, courts let corporations get away with, so that people had to go running to legislatures to beg government to “do something” about the corporate Frankensteins that the government had set loose. And it ignores that corporations drive regulatory capture and that the big ones are the partners of government — so much so that it has long been damned-near impossible to tell where business ends and government begins.

He says it would be a good thing if we removed legal entity status — I appreciate this, but in fact, of course, everyone (and Stephan himself) uses Stephan’s argument to deflect criticism from corporations and crony capitalism.

He speculates that “that wouldn’t lead to unlimited liability” for shareholders, but that’s largely a strawman — shareholders could be sued, and would have to bear costs of defense, which would make them quite interested in making sure the execs/manages/employees weren’t running around creating risks/hurting people. Just POTENTIAL exposure to risk gets people’s attention, and cutting that off is a massive subsidy to corporations.

Of course business firms that aren’t corporations could outlive their founders — through a gradual handover to younger generations, bringing in others, etc. But the natural, common law methods of business organization (partnerships, family businesses, cooperatives and associations) keep the owners very, very interested in making sure possible successors are brought up within the firm and understand employees, customers, suppliers, community members, etc., and in carefully monitoring the activities of such possible successors.

The artificial, statist corporation form loosens the bonds of mutual accountability  among owners, and between employees/other community members.

As for limited liability; he’s right about voluntary creditors — that voluntary counterparts can agree to limit each other’s liability to “business assets” only, and to exclude the personal assets of owners.

But as for the involuntary tort creditors, creating the corporate form and eliminating any possible liability of shareholders has had the clear consequence of totally muddling WHO it is that is acting and who should be responsible for torts — so we ended up totally eviscerating the old doctrines of privity of contract, grossly expanding the notion of “respondeat superior” (so corporate assets are on the hook, even when it isn’t clear what INDIVIDUALS ought to be liable for harms) and a lessening of accountability within firms. (Witness the confusion of Stephan and Lew Rockwell regarding the catastrophic BP Horizon blow out a few years ago, when they proclaimed that “BP” was the “biggest victim” of the catastrophe, without identifying whether the victims were those killed, workers generally, managers, execs or shareholders, and that “accidents happen”.)

I agree that “ownership” shouldn’t necessarily imply personal responsibility when innocent persons are harmed in the course of corporate business activities — my point is that shareholders should NOT be automatically excluded from POTENTIAL liability. By excluding them entirely for liability the effect has to been fashion unnaturally large pools of assets and capital that are managed by executives who are agents for no principals whatsoever, leading to a host of nonsense, including not simply a massive Regulatory State and rampant crony capitalism, but to nearly powerless shareholders in listed companies whom themselves claim to be “victims” whenever Bad Shit “happens.”

His argument that shareholders aren’t “owners” is garbage; it’s another post facto argument, and itself statist. Until this point, he argued that shareholders were just like partners/limited partners (who just have indemnity agreements that spread out individual liability for claims by making each other mutually responsible) –now he’s arguing that, hey, because the shareholders BY LAW have no responsibility, they shouldn’t be considered “owners”.

He then makes the point — which I made to him years ago — that if shareholders were exposed to risk, they would just buy INSURANCE — so the world would NOT collapse and everything would just go on as before. Well, not so fast — if shareholders had potential risk exposure and wanted insurance, it would be a COST that they would have to bear — and what he’s actually doing is acknowledging that, at least as to the cost of such insurance (which would vary company by company, industry by industry), government is now currently SUBSIDIZING corporations (or at least being shareholders in them).

As a result, his “net of causality” for torts has been totally confused.

His argument that shareholders may not contribute a dime directly to the corporation is technically true, but that’s another post facto argument. If there was no corporation, then any new partner in a partnership would certainly, if not also be making a partnership contribution, be directly undertaking obligations to the other partners.

All of the D&O and other liability insurance that Kinsella refers to have real costs; the bigger the firm, the more government-afforded protection, and the less important these costs are. Further, of course, thanks to the government-granted “get out of potential liability free” card (in the form of limited liability), shareholders in corporations don’t have to face costs and risks of monitoring, insuring or self-insuring for potential liability or hassles of being sued by injured persons if damages exceed the assets of whoever proximately caused them or the insurance coverage and business assets of the firm. These things matter, and we face greater risks and reduced incentives (and corresponding markets) to monitor and manage risks as a result.

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Why Some Anarchists Hate Anarchy (hint: they love corporations)

September 21st, 2011 1 comment

Just saw a post by Stephan Kinsella from last month on the main blog, and couldn’t resist a little fun with his closing paragraph, which I tweaked slightly:

So: limited liability corporations are the most important of all capitalist organizations.

And you can’t have corporations in anarchy, since corporations (and their essential characteristics like limited liability of shareholders) come from artificial edicts by the legislature of a state.

So, we must have a state. QED.

(Just playing.)


Some further thoughts on corporations are here:


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Scrupulosity IV: Corporations are the Health of the State (thanks to institutionalized moral hazard)

June 6th, 2011 2 comments

I copy below some more of my dialogue with Stephan Kinsella and others, regarding Jeffrey Tucker‘s unhappiness that not all libertarians are cheerleaders for our current model of “capitallism” (see my eariler posts on “scrupulosity“).

Stephan does a great job at wrestling with strawmen, attributing to me positions that I have expressly argued against, and questioning my forthrightness and my dislike for the state:

{Folks apologies if you are seeing disordered paragraphs; the blogging software seems to do that frequently when one copies in various blocks of text. I have added a few numbers to make chronological order clear.)

1.  Stephan Kinsella June 5, 2011 at 8:33 am

Calling shareholders “passive” might be a fair representation of the existing, government-created system – especially for listed, “public” companies, but that’s pretty much my point. This is NOT true of partnership or other traditional types of business organization,

See Hessen et al.–it is true of limited liability partnerships, where you have limited partners who are passive, and general partners who are active.

But even for a general partner–why is he automatically liable for what torts employees commit? this hoary, feudal notion of respondeat superior–you are responsible for your “servants’” actions–is a bit insulting and elitist.

” and the grant of limited liability itself deliberately signals shareholders that they can turn a blind eye to activities that profit the company while posing costs and risks to others.”

If they would not be liable in the first place then it’s not a grant, any more than you, as a Walmart customer, are “granted” limited liability just b/c the law does not currently make you jointly reponsible for torts committed by Walmart employees. I suppose you could argue this “grant” of limited liability to you as customer makes you as customer turn a blind eye to its risky activities. As I said in my post, this broad view of causal responsibiltiy would make everyone in society liable for everyone else all the time, without exception, which is why I analogized it to socialized medicine/Obamacare.

Sure, it’s probably not now “fair” to passive shareholders to “attribute vicarious liability to them … for torts committed by employees”, but that is both a strawman and besides the point. The point is that the government grant of limited liability MAKES A DIFFERENCE;

You keep saying it’s a grant but this is question begging, as this assertion assumes that absent this legal rule they would be liable vicariously under some libertarian principles of causation. I deny that they would. So if you say it’s grant you are arguing dishonestly by assuming your premise.

the strawman is that I am certainly NOT proposing a new rule that shareholders be assigned liability for acts by corporate employees, but simply that the limitation on liability be eliminated

WElt he state should be eliminated of course. There should be no laws whatsoever regarding corporations. I agree with this. The limitation of liability law should be abolished. I of course agree, which shoudl be apparent from reading what I have written since unlike many left-libertarians who are vague and maunder and equivocat and are disingenuous I try like Rothbard to be clear and upfront, and am very openly anti-state. I simply disagree with people like you who explicitly or implicitly propose that in a free society it would be appropriate to automatically hold the equivalent of passive shareholders (whatever you call them) vicariously responsible for others’ torts. If you think removing limited liability would make a difference, this is your implicit view. This is what I disagree with; your distractions seem to be an attempt to cloud the water to make it hard to see that this issue is at the heart of our disagreement.

– just as other grants by the government of liability limits (nuclear power, offshore oil drilling, and pollution permitting generally) should be eliminated.

Yes, I agree, but that is a bad analogy b/c those ARE real limits that do have an effect, unlike the shareholder case which does nothing IMO but ratify the situation that would obtain anyway.

Your assertion that limited liability of shareholders “would also be present in a free society in which private contractual ‘corporations’ arose” is totally unsupported. Can you point to where Rothbard, Hessen or Pilon argue that private contracts that limit liability of investors against voluntary creditors could serve to limit their personal liability against INVOLUNTARY creditors, viz., tort victims?

It’s not contracts that do it. It’s simply the fact that tort victims can pursue the tortfeasor, and the shareholder is not the tortfeasor; and there is no ground for making the shareholder liable vicariously for the employee’s torts.

And yes, see: Rothbard on Corporations and Limited Liability for Tort; Legitimizing the Corporation and Other Posts; Defending Corporations: Block and Huebert; Pilon on Corporations: A Discussion with Kevin Carson; Corporations and Limited Liability for Torts; In Defense of the Corporation

For example, see pilon pp. 1310-. for Hessen, see this excerpt, , pp. 18-20
and — this last post also quotes Rothbard: “Similarly, if a corporate manager committed a wrong and damaged the person or property of others, there is no reason but “deep pockets” to make the stockholders pay, provided that the latter were innocent and did not order the manager to engage in these tortious actions.”

So, Rothbard, Hessen, Pilon–all hold that passive shareholders are not automatically liable vicariously for torts committed by employees, any more than limited partners would be.

Just as you, surely, have no objection to private agreements between parties to protect the information created by one of them (private “intellectual property”)

I would not call it that. “Intellectual property” is a propaganda term invented recently to justify state grants of monopoly privilege (patent and copyright)

but simply oppose state-created IP, so too should you (as a lawyer!) be able to understand that in principle, of course, I have no objection to contract-based companies, but oppose the obvious and important favors granted by the state in the case of all corporations?

You are confusing the case for contractual limited liability of shareholders for contractual debts, with the case for shareholders not being liable vicariously for others’ torts. The latter is not based on contract.

2. Not to be missed is that the grant of limited liability is extremely important and consequential:

See: The Cliff Notes version of my stilted enviro-fascist view of corporations and government – TT’s Lost in Tokyo

It has allowed owners to divorce themselves from formal reponsibility for the acts of their agents/employees, to divorce themselves from the communities in which their firms act, and to dodge claims of moral responsibility.

So what? this is not a justification for a law. It’s just some “policy” musings.

So we are left with massive corporations which are massively entangled with government

That’s b/c there is a state (which you favor, not me; I’m the anarchist), not b/c of the way people would create firms on the free market

and are powerful buyers of favors, which citizens forever clamor for “more control!”, and which lack any clear locus of responsibility — and in which we find anarchist libertarians like yourself and Lew Rockwell acting as their lawyers, and calling them and their shareholders “the biggest victims” (not the little people on the short end of the stick of projects like Gulf oil drilling, nuclear reactor meltdowns or even mundane health/air/water/soil damage from pollution)

Emotivism. You are not making an argument. It is not unlibertarian to have a view as to who is victimized by a given state policy. In fact the central state whose legitimacy you yourself support claims the overlord/landlord status in the offshore continental shelf; BP held a lease. It was your central state that is the landlord whose tenant had the oil spill. By your principles of vicarious responsibilty where you want to willy nilly say some old lady holding a single share of BP stock should be personally liable for this tort, of course the landlord should be too, right? I.e., your state is responsible, so why are you blaming me for favoring private investors in a free society, when you support the very state’s existence, the state that is responsible for the BP spill in the first place? And of course the nuclear industry is heavily distorted and corrupted by the state; Chernobyl was teh state’s fault, and the entire meltdown-prone western nuclear industry was corrupted by your beloved state for military reasons — instead of safe Thorium we needed the current system to produce nuclear weapons

So blaming this on private investors is rich. It’s the state’s fault, as usual. You think that getting rid of one of the few state laws that happens to mimic the likely result on a free market (limited liability for passive shareholders) is what you should focus on?!

As Mises long ago noted, moral hazard matters.

This is how statists and law professors reason. It is not how libertarians reason. We believe in individual rights–property rights–and have principles. we don’t run around “weighing” various “policy reasons” to tweak and fine tune statist positive law.

3. While in principle any partnership can keep going even when one partner dies or decides to leave and new partners are added, surely you are aware that this is a very cumbersome process, not in small part because of the concerns that the partners and its lenders, suppliers and customers all have about who, precisely, is managing the business and who has liability for potential losses?

Nonsense. SEe the Hessen excerpt above, p. 17, regarding how partnerships or firms can easily make the firm effectively immortal by use of continuity agreements. This is not hard.

Just as for limited liability,

More question begging, as I have explained

the grants of legal entity status,

this is not a gift but an unnecessary status that the state uses to justify regulation and double taxation of shareholders. In a free market firms would not have legal personality nor do they need to. Hessen has already explained this almost 30 years ago.

unlimited life,

See Hessen, last mention above. This can be done contractualy.

unlimited purposes and the ability to own subsidiaries are all substantial AND consequence-laden gifts from the state.

The purpose is whatever the shareholders agree to. It has nothing to do with the state just as marriage should not. Ownign a subsidiary is not a privilege but just another contractual private scheme. Nothing you described is a gift fromt he state. All these features are doable privately and contractualy, except for entity theory which is not a gift but a penalty.

Show me a partnership that has any of these, without a grant from the state.

This is like asking me to show you a 100% reserve bank. They are not used now b/c the state’s fractional reserve/guaranteed system outcompetes it. If I want a perpetual firm I just use a corporation b/c the state provides this mechanism. In a free market people would have to do it privately contractually, on their own; I have no idea if they would be called limited partnerships, LLP, LLC, or what. Who cares? IT’s just a detail. Get the state out of the way, and we’ll see.

Waht i object to is your clamoring for shareholders to be liable, when you have no theory whatsoever undergirding this.

The state creation of corporations has do much to muddle who, exactly, is responsible for injuries to third parties caused by “the corporation”.

So what, really? In most cases the corporation pays the victim, and has assets to do so.

Getting rid of limited liability would do much to provide moral clarity,

Again, this is question begging, b/c you are assuming there would and should be liability for shareholders absent the limitation of liability law.

I would note that, just as if deposit insurance were eliminated, market actors would step up to advise on which banks are safe and to provide deposit insurance, so too would insurers step up if limited liability were ended.

We are NOT talking about bringing down capitalism.

I know, but this still does not justify your claim that shareholders should be liable vicariously for the torts of others. What is your theory of causal responsibility? I have tried to sketch one out — — and see no way to hold passive shareholders liable; confirming the reasoning on the same lines of Hessen, Pilon, and Rothbard.

TokyoTom June 5, 2011 at 10:00 am

Stephan, of course the state is also at fault when statist corporations do stupid s**t like in the case of BP and TEPCO, and I’ve been arguing the case against the state as landlord loudly here for years now.

” claim that shareholders should be liable vicariously for the torts of others.”

You keep asserting this, even though I’ve made careful efforts to make it clear that I make no such claim. Do you anarcho-capitalists have such a difficult time reading? (By the way, since the boxes you want to put people in matter so much to you, I’m not by my own consideration “left” anything.)

I simply want to end the state creation of corporations, in particular the grant of limited liability to shareholders. You think it doesn’t matter and fight tooth and nail to defend corporations that lack any clear personal moral locus, while I think it has mattered and still quite profoundly, not the least in providing the rationale for the regulatory state.

Just as deposit insurance is at the root of rampant moral hazard in our financial sector, so too is limited liability at the root of corporate statism.

Sorry, but it’s late and I have a full day tomorrow. But I’ll ask, what INDIVIDUALS would you hold responsible for the BP oil spill and TEPCO bad decisions?

nate-m June 5, 2011 at 10:49 am

I simply want to end the state creation of corporations, in particular the grant of limited liability to shareholders. You think it doesn’t matter and fight tooth and nail to defend corporations that lack any clear personal moral locus, while I think it has mattered and still quite profoundly, not the least in providing the rationale for the regulatory state.

” claim that shareholders should be liable vicariously for the torts of others.”You keep asserting this, even though I’ve made careful efforts to make it clear that I make no such claim.

So you do not think that share holders should be liable for actions of employees, but you think that the legal framework that prevents share holders being liable for the actions of the employees should be removed?

It seems that these two statements are diametrically opposed under the current system. If you do not think that share holders should be liable then the way you achieve this is via LLC.

The only alternative is to go full AnCap with a contract-based legal framework, but that’s not going to happen any time soon.

If you remove LLC protections then your making shareholders liable vicariously for the torts of others.


2. TokyoTom June 5, 2011 at 6:47 pm

I suspect that Stephan’s lack of my response to my most recent comment to him
indicates that he finally understands the difference between (1) a government rule absolving shareholders from personal liability for acts of the corporate legal fiction or its agents and (2) the absence of such a clear limitation of risk, which would leave shareholders subject to the risk of claims and a possible finding of liability.

There is quite a difference, and it can be seen in the choice of corporate founders to use the limited liability form, as opposed to alternatives that leave shareholders/investors on the hook, such as partnerships, corporations where shareholders expressly have no liability limitations (Amex was one such when it was created) or where shares are not fully paid in (and the corporation has a capital call), and in the continuing pressure by owners of partnerships to get governments to create entity forms that absolve owners of liability for damages to involuntary creditors.

nate-m, does this help understand my point?

I am not saying we should have a rule that automatically makes shareholders liable for acts by the corporation and its agents, but that we should end the government rule that frees them from risk – and the incentives to oversee and monitor that risk.

The consequence of limited liability has been the steady growth of the regulatory state, and of use of the regulatory state by corporations (via CEOs who have slipped shareholder control) to create barriers to entry.

Just like we can end financial regulation by ending deposit insurance and forcing depositors to monitor banks, so too can we end the regulatory state by making shareholders pay attention to the risks created by corporations.


Stephan Kinsella June 5, 2011 at 7:35 pm

Your comments are incoherent, Tom. waht in the world are you trying to say.


TokyoTom June 5, 2011 at 9:14 pm

I’ll make it simple, so even a non-lefty, non-stupid and non-dishonest anarcho-cap lawyer can understand:

The state grant of limited liability to shareholders, besides simply being unjustifiable under libertarian principles, has, by reducing the need of shareholders to monitor risk, had a profound affect on the development of what we now call ‘capitalism’ and on the growth of the regulatory state in response to complaints about corporate excesses.

I restated this position last September in the comment thread to a post by Geoffrey Plauche:

“Your uncertainty here is a manifestation of the confused discussion over liability for “corporate torts”that Stephan Kinsella refers to. His position is that only humans act, and not corporations (though they are given “legal entity” status), so only particular persons who actually injured someone else (and those who directed/ordered their actions) should be liable for any tort – not the corporation itself (and certainly not shareholders, unless they were personally involved somehow). I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit — precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?

“Rolling back limited liability should not mean that shareholders SHOULD be held liable for corporate torts in the same way that executives, managers and employees (the first two benefiting from company-purchased insurance policies) and sometimes lenders are; it would just mean that they would get no government-provided “get out of jail free” card. In this way, common shareholders would be put on a similar footing to partners in a partnership that acts through paid managers.”

The facts that the state now makes the corporate form widely available and that we have huge, statist corporations do not make the status quo acceptable, just as the state’s generosity in making IP widely available and that many are now invested in the status quo doesn’t justify IP or validate all the damage it’s causing.

But despite your ancap identity, you (and Lew Rockwell) keep rushing out to defend our system of amoral and anonymous pools of capital, rather than real people:

Thankfully, others are seeing this re limited liability:

Finally an LvMI commentator who sees the elephant in the room: effective reform to rein in rampant moral hazard at banks means removing limited liability! – TT’s Lost in Tokyo

The Curse of Limited Liability; Executives/traders of big financial corporations generate risky business, while smaller partnerships are much more risk averse – TT’s Lost in Tokyo




3. TokyoTom June 5, 2011 at 7:14 pm

Block points to corporate moral hazard as a dynamic behind the rise of the regulatory state:

Limited liability produces both pollution and political meddling: Block on Environmentalism – TT’s Lost in Tokyo

Ludwig von Mises on laws that cap risks:

“The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

“Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people. …

“It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.”


Stephan Kinsella June 5, 2011 at 7:36 pm

What is your question, exactly?


TokyoTom June 5, 2011 at 9:18 pm

Not a question, but a response to your claim that my concern about “moral hazard” and CONSEQUENCES and somehow taints me and is non-libertarian:

“This is how statists and law professors reason. It is not how libertarians reason. We believe in individual rights–property rights–and have principles. we don’t run around “weighing” various “policy reasons” to tweak and fine tune statist positive law.

Balderdash: we all care about consequences, which is the chief reason why people are paying the slightest attention to your ‘principled’ ragings about IP.


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Immodest thoughts: To fix capitalism, we must get govt out of corporate risk-management (rent-selling) business and get shareholders to stop playing ‘victim’ & start paying attention to risks

May 11th, 2011 2 comments

I am prompted by recent events to follow up on thoughts I emailed to Sheldon Richman a few months back:

I feel strongly that If we want to fix the country (and if libertarians don’t want to be dismissed as irrelevant/patsies for rent-seekers) we need to find ways to restore shareholder ownership of downside risk. This is the only way to back away from the destruction of communities and our natural and government commons by faceless elites through corporations – and the battle for control over Government micromanagement that so often is captured by corporations and serves as barriers to entry.

Insurers would step in to help shareholders and act as a check on management.

The states that create corporations retain power under the 14th Amendment to discriminate in favor of local, unlimited liability forms of corporation or corporations in which shares are not fully-paid up. There is nothing like a substantial risk tail to focus shareholders on managing management.


In addition, allow me to summarize thoughts that I have posted extensively elsewhereThe state has institutionalized moral hazard and exacerbated principal-agent problems via the grant of limited liability to corporate shareholders. This grant is at the core of why investors chose to us the corporate form (as opposed to traditional partnerships and older versions of corporations where shareholders retained substantial risk), and is something that cannot be obtained merely by voluntary transactions – as it involves future potential involuntary victims of acts by the new corporate legal entity (lenders and other parties can of course agree in advance to liability caps and recourse limits). 

This state intervention has set in motion and greatly fuelled the growth of government and battles with citizen groups over the wheel of government — battles in which insider elites, generally acting through long-lived and deep pocketed corporations that are armed with greater knowledge and cloaked with anonymity, have the overwhelming advantage. I earlier summarized these dynamics here: The Cliff Notes version of my stilted enviro-fascist view of corporations and government


As I have noted elsewhere: I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts. Rather, I

(1) point out that limited liability itself has served to muddle the question of whom, exactly, should be responsible for the very real harms that corporations frequently cause (if, as some argue, the corporations and their shareholders themselves are the “victims” of the troubles they create, then whom, exactly, are the perpetrators?),

(2) note that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not solely when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations regulatory “rights to pollute” that curtail liability even when sufficient assets are available),

(3) argue that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profoundly perverse consequences (consequences at a serious enough level that state-loving libertarians in effect concede simply by troubling themselves to argue against curtailing limited liability),

(4) note that the most efficacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility for managing risks to enterprise owners (and ending the counter-productive regulatory risk-management experiment), and

(5) note that a curtailment of limited liability for torts could be hedged by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to busness enterprises that operate as partnerships, unlimited liability corporations, or in cases where shares are not fully paid up so that calls for significant additional capital could be made against shareholders if needed to pay claims.

All of this should be quite evident in the wake of the BP disaster in the Gulf of Mexico, as well as in the nuclear crony-capitalism behind the decision-making that has now come back to bite Japanese individuals and firms that use TEPCO power or which are downwind of their tsunami-damaged nuclear plants (though both of these cases are compounded by even deeper governmental interventions). It should also be evident in the many cases at home and abroad where corporations act to exploit (and pay royalties to governments on) mineral and energy resources that governments purport to “own”, and where governments grant corporations “public utility” monopoly rights.

Any suggestion that one must “provide a theory of liability that coherently distinguishes shareholders from any other patron of the company” BEFORE one can examine any justifications FOR the state grant of limited liability or the consequences of such intervention would be both sadly non-libertarian and dangerously blind and shallow.

Can I interest any other libertarians in pursuing this avenue of rolling back the state?

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Tornadoes, fires and floods, oh my! Time to stop hiding our heads in the sand. Who benefits from our loading of the climate dice?

May 6th, 2011 No comments

[My apologies for weird formatting, I find it very difficult to deal with html embedded in text that I cut and paste!]

No doubt a locally cold winter helped many readers put behind them thoughts about last year’s worldwide record droughts, floods and heatwaves.

But the storms and firestorms are back with a vengeance, and neither the overall global warming nor our ongoing radiative forcing have stopped.I urge readers to take a look and reflect. There is, after all, a libertarian climate agenda of freeing markets and dismantling corporate risk-shifting and resulting over-regulation (as well as apparently serious suggestions from George Reisman and Stephan Kinsella that we start experimenting with atom bomb-based climate modification or other deliberate geo-engineering measures). 

Given the great heat sink that are the world’s oceans, we are only now feeling the forcing attributable to GHGs emitted 40 years ago (with a similar lag before the full effect of what we are emitting now will be felt). And the emissions of China and India are expected to double further before peaking in a few decades.

A few links and excerpts, in reverse chronological order:

Dr. Jeff Masters’ WunderBlog; April’s tornado outbreaks the two largest in history; Posted by:JeffMasters, 2:54 PM GMT on May 05, 2011



Stu Ostro, Weather Channel Senior Meteorologist, “The Katrina of tornado outbreaks“:

The atmosphere was explosively unstable with summerlike heat and humidity, interacting with a classic wind shear setup as a strong jet stream and upper-level trough crashed overhead….

The atmosphere is extraordinarily complex, and ultimately what’s happened the past month is probably a combination of influences, including La Nina, other natural variability, and anthropogenic global warming.

Extreme weather disasters, especially deluges and floods, are on the rise — and the best analysis says human-caused warming is contributing (see Two seminal Nature papers join growing body of evidence that human emissions fuel extreme weather, flooding).  Last year, we hadTennessee’s 1000-year deluge aka Nashville’s ‘Katrina’.  And  Coastal North Carolina’s suffered its second 500-year rainfall in 11 years.

Craig Fugate, who heads the U.S. Federal Emergency Management Agency, said in December, “The term ‘100-year event’ really lost its meaning this year” (see Munich Re: “The only plausible explanation for the rise in weather-related catastrophes is climate change”).

Former hurricane-hunter Masters has a good analysis of how the “Midwest deluge [is] enhanced by near-record Gulf of Mexico sea surface temperatures”

UPDATE:  “Persistent, heavy rains have helped swell the Mississippi and Ohio rivers to the highest levels ever recorded,” CNN reports.  And the rivers are still rising.

The Effect of Climate Change on Tornado Frequency and Magnitude:  “There is an obvious increase in tornado frequency between 1950-1999. This could be due to increased detection. Also this could be due to changing climatic conditions.”

For decades, scientists have predicted that if we kept pouring increasing amounts of heat-trapping greenhouse gases into the atmosphere, we would change the climate.   They specifically predicted that that many key aspects of the weather would become more extreme — more extreme heat waves, more intense droughts, and stronger deluges.

As far back as 1995, analysis by NOAA’s National Climatic Data Center (led by Tom Karl) showed that over the course of the 20th century, the United States had suffered a statistically significant increase in a variety of extreme weather events, the very ones you would expect from global warming, such as more — and more intense — precipitation. That analysis concluded the chances were only “5 to 10 percent” this increase was due to factors other than global warming, such as “natural climate variability.” And since 1995, the climate has gotten measurably more extreme.

Multiple scientific studies find that indeed the weather has become more extreme, as expected, and that it is extremely likely that humans are a contributing cause (see “Two seminal Naturepapers join growing body of evidence that human emissions fuel extreme weather, flooding that harm humans and the environment” and links therein).

Beyond that, as Dr. Kevin Trenberth, head of the Climate Analysis Section of the National Center for Atmospheric Research, explained here last year: “There is a systematic influence on all of these weather events now-a-days because of the fact that there is this extra water vapor lurking around in the atmosphere than there used to be say 30 years ago. It’s about a 4% extra amount, it invigorates the storms, it provides plenty of moisture for these storms.”  He told theNY Times, “It’s not the right question to ask if this storm or that storm is due to global warming, or is it natural variability. Nowadays, there’s always an element of both.” 

Jeremy Hance;; Are US floods, fires linked to climate change?; April 28, 2011

“There have always been extreme events,” Peter Stott, a climatologist from the UK’s Met Office, told Yale360 in a piece on extreme weather and climate change. “Natural variability does play a role, but now so does climate change. It is about changing the odds of the event happening.”  

“By now, most people get that you can’t attribute any single weather event on global warming,” John Nielsen-Gammon, Texas’ state climatologist and a professor at Texas A&M University, told the McClatchy-Tribune news service. “But some things are clear: temperatures have been going up, and models all agree that the temperature rise will continue unless we get some massive volcanic eruptions or the sun suddenly becomes much dimmer.”

 Multiple torrential downpours are setting the stage for more 100-year floods in the coming days, as meteorologist Dr. Jeff Masters reports today.

Several papers published in the journal Nature demonstrate that such extreme precipitation events in specific localities is the result of climate change and not an overactive imagination. The scientists studied the actual, observable precipitation patterns in the 20th century and then compared them to climate model simulations and a splash of probability to discover a close, predictive match up.

They claim that their results provide “first formal identification of a human contribution to the observed intensification of extreme precipitation.” The scientists, led by Seung-Ki Min at the Climate Research Division from Environment Canada in Toronto, say that the global climate models may, in fact, be underestimating the amount of extreme weather events, “which implies that extreme precipitation events may strengthen more quickly in the future than projected and that they may have more severe impacts than estimated.”

In another study, this one led by Pardeep Pall at the University of Oxford, looked at a specific weather event: the 2000 floods in England and Wales, which occurred during the wettest autumn since 1766. …

Climate change could signal prolonged droughts in American Southwest
Think the 1930s “Dust Bowl” was bad in the American West? Scientists have found evidence of “mega-drought” events that lasted centuries to millennia in the same region during warm, interglacial periods in the Pleistocene era (370,000-550,000 years ago). The evidence heightens concern over how the region will react to the modern day global temperature spikes.

The American Southwest is already predicted to get pretty dry during climate change, due to a drop in winter precipitation that would increase evaporation rates and lead to smaller snow packs that normally provide water during the warmer months.


New York Times, In Weather Chaos, a Case for Global Warming, (August 14, 2010)

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That annoying off-beat drummer: In response to the 'heretic' Dr. Curry, more on my pig-headed libertarian open-mindness on climate issues

March 24th, 2011 No comments

I alerted readers in January to a blog post on libertarianism and the environment by Dr. Judith Curry, who heads the School of Earth and Atmospheric Sciences at the Georgia Institute of Technology, and is known for her work on hurricanes, Arctic ice dynamics and other climate-related topics.

Scientific American  noted last October, in “Climate Heretic: Judith Curry Turns on Her Colleagues; Why can’t we have a civil conversation about climate?“, that:

over the past year or so she has become better known for something that annoys, even infuriates, many of her scientific colleagues. Curry has been engaging actively with the climate change skeptic community, largely by participating on outsider blogs such as Climate Audit, the Air Vent and the Black­board. Along the way, she has come to question how climatologists react to those who question the science, no matter how well established it is. Although many of the skeptics recycle critiques that have long since been disproved, others, she believes, bring up valid points—and by lumping the good with the bad, climate researchers not only miss out on a chance to improve their science, they come across to the public as haughty. “Yes, there’s a lot of crankology out there,” Curry says. “But not all of it is. If only 1 percent of it or 10 percent of what the skeptics say is right, that is time well spent because we have just been too encumbered by groupthink.”

While I recommend that interested readers review the whole thread, I copy below my comments and some related:

Judith, a climate scientist friend kindly gave me gave me a head’s up to your post.

I have been blogging and commenting for quite some time on environmental and climate issues from a libertarian perspective, and have also spent considerable time on trying both to help libertarians engage productively on environmental issues and to help leftist-environmentalists understand where libertarians are coming from.

Sadly, it’s largely a messy tale, reflecting how fights over government policy tend toward zero-sum games that blunt cooperation, the success that fossil fuel and other corporate interests have had in gaming the system, and how our tribal human nature leads many to abandon critical thinking in favor of choosing and reflexively defending sides and positions.

I have been highly critical of many libertarians in perpetuating unproductive discord, and have been the resident environmentalist pain-in-the-neck at the Ludwig von Mises Institute (for libertarian economics), which kindly hosts my blog. In particular, even while try to build bridges I have been critical of the Cato Institute, Competitive Enterprise Institute, Heartland Institute and MasterResource, which I view as being skewed by donations toward corporate agendas. There are of course some highly productive libertarians working on environmental and conservation matters; Terry Anderson and others at PERC (Properrty and Environment Research Center) have led the way on fisheries, water and other issues. (And then there are quasi-libertarians like Elinor Ostrom.)

Since you’ve expressed interest, allow me to load you up with a few links, to my exchanges with others such as John Quiggin, to my cajoling and castigating of libertarians, and to some of my views on climate/environment issues :

“Towards a productive libertarian approach on climate, energy and environmental issues ”

“John Quiggin plays Pin-the-tail-on-the-Donkey with “Libertarians and delusionism” ”

“A few more comments to John Quiggin on climate, libertarian principles and the enclosure of the commons ”

“A few more “delusional” thoughts to John Quiggin on partisan perceptions & libertarian opposition to collective action”

“To John Quiggin: Reassuring climate “delusions” help us all to avoid engaging with “enemies” in exploring common ground ”

“The Cliff Notes version of my stilted enviro-fascist view of corporations and government ”

The Road Not Taken II: Austrians strive for a self-comforting irrelevancy on climate change, the greatest commons problem / rent-seeking game of our age

For climate fever, take two open-air atom bombs & call me in the morning; “serious” libertarian suggestions from Kinsella & Reisman!?

Thanks, Dr. Reisman; or, How I Learned to Hate Enviros and Love Tantrums

“Escape from Reason: are Austrians conservatives, or neocons, on the environment? ”

“The Road Not Taken V: Libertarian hatred of misanthropic “watermelons” and the productive love of aloof ad-homs”

OMG – those ecofascists hate statist corps, too, and even want to – GASP – end that oh-so-libertarian state grant of limited liability!

“Who are the misanthropes – “Malthusians” or those who hate them? Rob Bradley and others resist good faith engagement despite obvious institutional failures/absence of property rights ”

On non-climate issues:

“Too Many or Too Few People? Does the market provide an answer? ”



  • Tokyo Tom, thanks much for your input. your post originally went to moderation owing to the large number of links.

    • Dr. Curry, thanks for your indulgence on this; given the time differences (bedtime now!) and my schedule tomorrow, I thought throwing out a few links might be useful (though I may be mistaken!!).


    • If I can add one further thought before I head off to bed, it would be that a key prerequisite (as Ostrom points out) for tackling commons issues like climate change that involves many players and countries is the need for TRUST, an element that is sadly lacking (a resource that libertarian analysis indicates is destroyed by squabbles over government) .

      Bill Gates, Roger Pielke, Avatar & the Climate (of distrust); or, Can we move from a tribal questioning of motives to win-win policies?

      On climate, myopic progressives console themselves by pointing out fossil $ behind science “skeptics”; but miss the same from left and ignore middle ground



One wee error in your intro:
“Sadly, it’s largely a messy tale, reflecting how fights over government policy tend toward zeronegative-sum games that blunt cooperation”
There. All fixed! ;)

Tom is someone who has managed to separate the difference between science and policy.

  • I am honored that you visit me, as you must be very busy in the Year of the Wabbit.

    Thanks, Eli, but it means that Tom is someone for whom the thrills of tribal comabt do not offset the woes of being the odd man out, if not “the enemy”.


Michael, Climate Etc. has technical threads and discussion threads. This is a discussion thread. I usually monitor things quite closely on technical threads, which are pretty much troll free. There have been excellent discussions with very knowledgeable skeptics on many of the technical threads. If you look at the denizens list, there are many people spending time here with serious credentials and wide ranging and varying professional experiences. This is not a place where mindless people bother hanging out.

What am I hoping to accomplish on discussion threads? I raise thorny topics on the discussion threads, at the interface between science and society. People challenge their own prejudices by arguing with people having different opinions. Invariably I learn something when people suggest interesting things to read (on this thread, i have found some of Tokyo Tom’s links to be interesting.)

Assuming i have time in the next day or do (which is not a good assumption, I’m afraid), i will do a Part II on this thread, picking out some points/ideas to focus on in a follow on thread. Once we get the heat out of the way, we often generate some light over here.

bob, I would be interested in a part II to this subject, and it would be great if Tokyo Tom or Rich wanted to do this, provided the topic was about how to deal with global environmental issues and potential tragedy of the commons issues.

  • Not sure how you could reconcile the distance between these two. Yes, they are both Libertarians. But one sees the climate issue like so:

    Yeah, I deny the anthropogenic carbon dioxide global temperature forcing “hypothesis” (not that it deserves even the courtesy use of that term). It started out as an extraordinary – hell, preposterous – effort to account for a completely screwed interpretation of insufficient surface temperature data (gained initially, it appears, from Stevenson screen thermometers “sited next to a lamp” by way of all sorts of instrumental screw-ups related to urban heat island effect and similar artifact) thirty years ago, and has proceeded through those three decades not only without the development of convincing evidence supporting this brain-dead blunder but suffused with a continuing agglomeration of data-doctoring, book-cooking, code-jiggering, suppressio veri, suggestio falsi, peer-review-perverting, dissident-censoring, cork-screwing, back-stabbing, dirty-dealing, and bald-faced lying.

    and the other sees it a bit differently: [my emphasis added]

    On environmental issues in general and climate in particular, find me someone ranting about “Malthusians” or “environazis” or somesuch, and I’ll show you someone who doesn’t understand – or refuses to acknowledge – the difference between wealth-creating markets based on private property and/or voluntary interactions/contracts protected by law, and the tragedy of the commons situations that result when there are NO property rights (atmosphere, oceans) or when the pressures of developed markets swamp indigenous hunter-gather community rules.

    So what’s the deal? Here’s a perfect opportunity for skeptics to educate the supposedly market ignorant, but they refuse, preferring to focus instead on why concerned scientists must be wrong, how concerns by a broad swath of society about climate have become a matter of an irrational, deluded “religious” faith, or that those raising their concerns are “misanthropes” or worse.

    Some on the left likewise see libertarians and small-government conservatives as deluded.

    Both sides, it seems, prefer to fight – and to see themselves as right and the “others” as evil – rather than to reason

    While we should not regret that we cannot really constrain human nature very well, at least libertarian and others who profess to love markets ought to be paying attention to the inadequate institutional framework that is not only poisoning the political atmosphere, but posing risks to important globally and regionally shared open-access commons like the atmosphere and oceans (which are probably are in much more immediate and grave threat than the climate). And they also ought to recognize that there are important economic interests that profit from the current flawed institutional framework and have quite deliberately encouraged the current culture war.

    So, once again, ideological affiliations aside, there are people who look for ways to solve possible problems and people who look for reasons to ignore possible problems.

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