Yes, the US is, in essence, a free country

Yeah, I realize that taxes are high, non-violent people are locked up in the Drug War, consenting adults can't do nasty things to each other, etc. But the thread at Austro-Athenian Empire that Micha linked below makes me shout, "Let's have some perspective!" Lost in the giant thread was this insightful comment by Stephan Kinsella:

Mises had it right when he said that you could tell if a country is basically capitalist (in the good sense) or not: whether it had a functioning stock market. We do, and I am quite sure Mises would never agree with such a ridiculous claim that there is “no distinction” between the state and the Fortune 500 companies. Of course they are essentially private. The market is hampered, but it is not the state. If it were the state, it could not produce as much as it does (see Mises’s socialist calculation argument).

“The nominally “private” sector large corporation is part of an interlocking directorate with the regulatory state.”

Saying it’s “part of” is arguing by squishy semantics. Anyway, it’s where we would differ. I appreciate your criticisms of vulgar capitalism or libertarianism, but it is not vulgar to recognize that companies are hampered (and yes they support the state too, as do most people) and distinct from the state.

It's batshit insane to believe that corporations ARE the state. If that makes me a "vulgar libertarian", then vulgar libertarians of the world unite, hoist the black flag, and smash ... something! A stock market is a humanistic, democratic, dare I say, egalitarian institution.

We not only have a stock market, but we all kinds of derivatives markets.

(Quick definition: A derivative is something that derives its value from something else. Examples: options (from stocks), futures (from commodities), etc)

This gives anyone the freedom to pretty much bet on anything.

If you're worried that the market might go down, you can sell your stocks, or short stocks, or keep your stocks but buy put options as a hedge.

If you believe that oil prices are going to kill the economy, you can buy oil futures or companies that produce oil or companies that drill for oil. Sure the economy might suffer, but you'll make money.

If you beleve Cheney's gonna screw us all by using the war as a means of profiting his buddies, you can become of those buddies by buying shares of Halliburton.

If you believe that the Fed is debasing the currency, you can buy gold or gold futures or shares of gold mining companies.

If you think VT is going to beat UNC, you can bet against UNC.

If you think people are underestimating McCain's chances, you can bet on Intrade that he's going to win.

If you think Israel and the US are going to bomb Iran, you can bet that on Intrade and make money.

We're close to the point of being able to bet whether or not it will rain tomorrow.

For almost any future possibilities, you can adjust your investments to fit them.

It's good to live in a country where almost any bet is possible. We're not helpless in the face of a changing economy. It would really suck if we were forced to keep our retirement money in a vehicle that we couldn't change, that we couldn't modify, and it would really really suck if that vehicle was on unsound financial footing. That would be like.... Social Security.

There's a lot of wackjob blathering about how the "entrenched political class" screws over the helpless little guy. Bullshit! The little guy, for as low as $8 a trade, can profit off of anything pretty much anyone in this country does.

Now, if someone claimed that Social Security IS the state, I'd agree. See the difference?

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A stock market is a

A stock market is a humanistic, democratic, dare I say, egalitarian institution.

Woah woah woah... I beg to differ, I happen to thing a stock market is a Good Thing.

There's a lot of wackjob

There's a lot of wackjob blathering about how the "entrenched political class" screws over the helpless little guy. Bullshit! The little guy, for as low as $8 a trade, can profit off of anything pretty much anyone in this country does.

I'm not sure what the first sentence has to do with the last sentence. How does the freedom to trade on the stock market make one immune to being screwed over by the entrenched political class?

You can protect yourself

How does the freedom to trade on the stock market make one immune to being screwed over by the entrenched political class?

The argument people are making is that the "entrenched political class" (which I have yet to see a good definition of) partakes in illegitimate gains by externalizing costs upon the little guy. Example: A govt contract for Halliburton (entrenched political class) paid for by the taxpayers (little guy). There's a simple vaccine against this power transfer: buying shares of Halliburton. Any gain the entrenched political class makes results in a proportional gain for the little guy. With an $8 trade, the little guy is instantly a member of the entrenched political class.

The diversity and maturity of equities and derivatives markets makes possible similar defenses against nearly all such power transfers.

As Arthur pointed out below,

As Arthur pointed out below, buying shares of Halliburton only works as an offset to their rent seeking if you purchase the stock prior to the rent seeking. It doesn't do you any good purchasing the stock in response to the rent seeking, after the market has already adjusted.

Honestly, telling the little guy "just buy stock" to make up for the increased cost of rent, health care, transportation, and food is about as serious sounding as "let them eat cake." Little guys generally don't have much investment income; many struggle to get by - that's sort of what makes them the little guy.

Any gain the entrenched political class makes results in a proportional gain for the little guy.

How much work does the word "proportional" do in this sentence? Suppose an agricultural industry lobbies for farm subsidies/trade barriers. Taxes are raised to pay for this, and domestic food prices increase. Does the purchase of stock by taxpayers and grocery customers counterbalance this cost? How much stock must they purchase to offset the cost of the subsidy? Perhaps we can all live at each others' expense and solve the problems of public choice if we just purchase enough stock?

I agree with that

Efficient markets will price in the renk-seeking behavior. But I still submit that being able to buy shares of a company like Macys or even Halliburton is fundamentally different from not being to buy share of the US Postal Service, Virginia Power, or the US Military. If Virginia Power at some point in the future raises rates for its 'customers', they get screwed over. If we could buy shares of Virginia Power, we could mitigate this getting screwed effect. But we can't because Virginia Power IS the state. Macy's is not the state. You can mitigate the future rent-seeking of any enterprise you are able to buy shares of. Sure there's risk involved and there's a cost, but there's a risk and cost with everything.

Honestly, telling the little guy "just buy stock" to make up for the increased cost of rent, health care, transportation, and food is about as serious sounding as "let them eat cake." Little guys generally don't have much investment income; many struggle to get by - that's sort of what makes them the little guy.

And honestly, I think you're overstating the case of the difficulty of buying shares in a stock. I'm not sure what the requirements are for opening an account with a deep discount broker, but I seem to remember it being a minimum of $1000 when I opened mine many years ago. Even at minimum wage, which most little guys make far more than, that would be a month's worth of savings. A trade costs $8, or just over an hour's labor. You can instantly buy over a hundred shares of a gold mining company with that much money.

I started with $2000 my account and $100K in student loans in 2001, which by most definitions, can be deemed little guy status (at that time). I saw the money supply inflation Greenspan and the Fed were creating. I bought gold mining shares. They've done well, greatly outperforming most of the indices, and definitely outperforming inflation. I believed the Fed was trying to screw me over by essentially redistributing wealth from me to people close to the Fed. I've mitigated that effect.

You're putting a condescending spin on it. I'd think you might see it as empowering the little guy.

But I still submit that

Huh? Who disputed this? You seem to have changed the argument.

There was more than one point in my post. One point was that believing that corporations are the state is, to quote myself, batshit insane. People were arguing in that thread on AAE that Macy's IS the state. My second point was that, by extension, because they are NOT the state, one can mitigate the damage they do. My third point was that, this represents a type of freedom that stock markets provide.

You can mitigate the future rent-seeking of any enterprise you are able to buy shares of. Sure there's risk involved and there's a cost, but there's a risk and cost with everything.

Is this really your argument? Seriously? How is the little guy supposed to predict (better than the market?) which firms will be successful in rent-seeking? And isn't the entire problem with rent-seeking concentrated benefits and dispersed costs? Ignoring those costs by saying "there's a risk and cost with everything" is sort of dismissing the entire field of public choice economics. The whole problem is the costs.

By risk, I mean the risk of holding shares in that enterprise, and by cost, I mean the cost of acquiring those shares. Yes, rent seeking is about concentrated benefits and dispersed costs. And I don't deny it's hard to beat the market. But given that you believe entity X is a publicly traded company, and given that it's trying to screw you over, you're not helpless. That's all I'm saying. If you're saying that the little guy has no ability to think or evaluate conditions for himself (as I evaluated the possibility of inflation in 2001), then we can't really continue this exchange, as there's no common ground to be had.

You're putting a condescending spin on it. I'd think you might see it as empowering the little guy.

I do see investing as a good thing and a form of empowerment, but you seem to be saying that it negates (rather than mitigates) the entrenched political class screwing over the little guy. That just seems preposterous to me.

I wouldn't have used the word "mitigate" three times in the comment which you responded to if I hadn't meant "mitigate".

Oops

Not sure what happened. That last comment is by me, not Micha.

I think I must've hit "edit" instead of "reply" and modified Micha's comment. Sorry Micha.

There was more than one

There was more than one point in my post.

But I only objected to one of your points, and I see your response to my objection as changing the subject.

As for mitigation, you seemed to be making a much stronger argument, approaching negation, not merely mitigation.

Yes, rent seeking is about concentrated benefits and dispersed costs. And I don't deny it's hard to beat the market. But given that you believe entity X is a publicly traded company, and given that it's trying to screw you over, you're not helpless.

The argument isn't that a given firm is trying to screw you over. The argument is that many, many firms attempt to lobby the government to screw you over. Knowing which ones will succeed, and therefore which ones to invest in (thereby encouraging successful rent seeking by increasing the value of the stock?) is not a reasonable strategy for mitigating dispersed costs.

$1000 per month savings?

I seem to remember it being a minimum of $1000 when I opened mine many years ago. Even at minimum wage, which most little guys make far more than, that would be a month's worth of savings.

Um, the minimum wage is $6.55 per hour. A 40-hour work week at that rate pays, before taxes, $262. weeks of that equals $1048. Unless you know how a regular working stiff can cover food, housing, fuel, utilities and other incidentals for $48 a month (and please enlighten me if you do!), I don't see $1000 being "a month's worth of savings."

a month's worth of savings

"I don't see $1000 being "a month's worth of savings.""

It is if you're living in that libertarian utopia known as "Mom's basement".

Some of these "if...then..."

Some of these "if...then..." arguments presume that the "then" is also a moral option.

And of course, just because you make money off of bad or evil things happening does not mean that things are swell, only that you are (at least temporarily) richer.

True, there's a moral component to any of these decisions

I was simply writing about the power dynamics.

betting

You cannot make money ff the bombing of Iran, you can make of the unexpected bombing of Iran, you cannot make money of Haliburton getting government contracts to wage war, you can make money of Haliburton unexpectedly getting the contract, you cannot (easily) make money of inflation, you can make money of higher than expected inflation, and so on.

you're right of course...

...assuming the market in question is efficient.

However, even if you don't profit above market returns, you can still gain market returns.

Even if you don't gain market returns, you can still protect yourself against the relative redistribution of wealth being aimed at you.

It'w worse than that.

You can only protect yourself if you can predict the bad thing will happen better than other people. This in itself is a full time job.

Even the ways you can protect yourself has been restricted

The government is wise to and has put up barriers to exactly the kinds of things you need to do to protect yourself against inflation. They've made such strategies costly in many ways.

They've essentially demonitized precious metals via various laws and threat of the resumption of prior law. Who's to say they won't put a "windfall tax" on the increase in value of precious metals.

Via tax law they have made it costly to save privately and cheap to save in ways the government has control over such as housing, IRAs, and 401ks.

They have most if not all avenues of escape blocked for the average guy.

Open an offshore account

Open an offshore account with a broker. You'll trade with post-tax money, but all your earnings will be untaxed, and will compound untaxed as well. If you invest in fixed income, in risky products, in commodities etc you're crazy to do it another way. You'll be taxed when you get the money back, but it's still better than leaving it here. There are also ways to get the money back without being taxed, but they're not on the safe side of the law.

Ummm...

It's good to live in a country where almost any bet is possible.

Um, are you aware that futures markets and gambling are illegal in the United States? It's even illegal to use offshore gambling sites (such as Intrade).

Besides that, Arthur B. is right, you can only make money off unexpected bad things. Expected bad things are just bad.

If you believe that the Fed is debasing the currency, you can buy gold or gold futures or shares of gold mining companies.

And then you pay large capital gains taxes just for trying to keep the money you've already earned.

Furthermore, the stock market is in shambles. A functioning stock market pays dividends. This fundamental concept is becoming increasingly foreign. And failure to pay dividends is not even something you can make up for by shorting stocks. It's pure, dead weight loss. Read this post by Mark Cuban - he knows way more about stocks than you do.

correction

*correction - I meant prediction markets, not futures markets

And in that

And in that post
http://blogmaverick.com/2008/09/26/my-bailout-solution-im-in-for-at-least-50mm/
he claims

The ETF would initially be valued at the total amount raised and then trade based on its financial results and the trust the American people and international markets have in the job the Fund is doing to monetize the assets. If the fund is making money, the ETF will trade up. If not, not. Either way, the share price and the transparency required of the ETF will make it obvious to taxpayers just how well their taxpayer dollars are performing.

Really ? Won't the ETF go up simply because people are long and loud ?
Someone's not completely consistent.

Fractional Reserve

With fractional reserve banking it will go up just because one is in a period of monetary inflation. The fundamental problem here is fractional reserve. It is what coordinated the error and made it happen all at once instead of on the basis of individual firms.

Sorry, standard answer #1304

Sorry, standard answer #1304 did not apply here. You lose.

Mostly can't make money off unexpected bad things

"you can only make money off unexpected bad things."

You can't even do that. You have to have an unexpected bad thing happening that you know is happening but that you also know when it is happening.

Timing matters. It has been clear for over a decade that a very bad thing was going to happen but absolutely no way to time it.

Austrian economics predicts that our governments actions were incredibly stupid, that they would have repurcussions, while at the same time predicting that when they will have their effects is in fact not predictable.

This collapse has taken far longer than I expected, but I expected it unlike most. It would be very hard to "make money" off it. The best one could expect is to not lose as much money as other people do.

William Fleckenstein has been bad mouthing Fanny Mae and Freddy Mac for a long time, is someone who shorts, I very much doubt he's made as much money as one could off this if you could read the papers a month in advance to predict the exact timing.

Worse yet, how to predict the governments response. They might just decide to buy all the crap on the books of an institution that you shorted at the right time. But that's part of the prediction of when and if it's going to be a bad thing. Because the thing you are betting on is limited to one avenue of action. People make choices that you can't predict in this way.

Timing is part of the

Timing is part of the expectation.

oops

"If you're worried that the market might go down, you can sell your stocks, or short stocks, or keep your stocks but buy put options as a hedge."

One of those options did not survive the week.

Shorting is high risk for other reasons to

Besides the government can and does, as of this moment, step in and stop short trading. Which means your game stragegy could be voided at any time.

You are betting that it will go down at free market prices but the government steps in to make sure the shorts lose, regardless of whether they were ever right.

Besides shorting has never been a very good way to make money, ever. It fails for many different reasons. Those who do win are mostly lucky.

Had One, That Is

"Mises had it right when he said that you could tell if a country is basically capitalist (in the good sense) or not: whether it had a functioning stock market. We do..."

We DID.

This has been some reeeeally

This has been some reeeeally bad timing for this post.

I sort of want to laugh, but

I sort of want to laugh, but I also want to cry. Libertarianism in a nut shell.

401k is a corporate tool

"If you believe that the Fed is debasing the currency, you can buy gold or gold futures or shares of gold mining companies."

No I can't. The corporations have colluded with the government to set up the retirement system so that is not possible for me. I requested and requested of my company over the past eight years to add a precious metals and a cash fund to the choices in my 401k but they refuse.

Part of that refusal is due to governmental rules about what can be in 401k. Of course, the rules for 401k accounts were devised and modified with heavy lobbying by corporations. It's just another example of capture of regulation by those with concentrated interest. The 401k is in large part a tool of the corporation, and of the government. It is not set up with the employee mostly in mind.

No employee in his right mind would set up rules that would penalize himself heavily for taking out his own money early.

discussion

In this discussion, expletives like "batshit" seem to pass for intellectual content. Very emotional crowd.

guano!

You have something against batshit?