NOT Enforcing Strict Liability On Corporations Always Reduces Society's Wealth
Wednesday, June 29, 2005 (11:00:00)
Posted by dan1
Why NOT Enforcing Strict Liability On Corporations, Politicians and Ourselves Always Reduces Time Alive & Total of Profitable Exchanges!
by Dan Alter n1cl-1
After a question posed by Ronald Coase in "The Problem of Social Cost" Journal of Law & Economics, October 1960, it became politically acceptable to relax Strict Liability for corporations, and by extension anyone else who could bribe politicians to relax Liability for them. It was a "theoretical" question, "Could society relax Strict Liability for the damage you do others, i.e. No Liability, and not reduce the Quantity of Goods & Services Exchanged(Q G&S XCed)?
Surprisingly, using the standard measure economists use to total the Q 0f G&S XCed, Coase found no difference as long as you made someone pay for the damage. i.e. The person damaged paid the damager not to hurt them again = the legal definition of extortion = crime does not have a cost to society. It was a controversial result.
This result was loved by corporations and politicians, they could change the rules any which way they wanted to. I read Coase's Theorem in December 1975. It took me eight years to prove how he had committed a fundamental analytical error. He had unconsciously used the Fallacy of Non Attribution = Instead of using a real good in his model as his measure, he assigned an imaginary money price to the goods exchanged in his examples.
Walras Law which economists use to total the Quantity of Goods & Services Exchanged demands one of the real goods in the chain of exchange be used as your money for totaling quantity.
What Coase had actually enabled me to prove was that No Liability always reduces the Q 0f G&S XCed, the Quantity of Time Alive. Coase received the 1991 Nobel in economics for Coases's Theorem.
Ronald Coase asked in "The Problem of Social Cost" Journal of Law & Economics October 1960 the fundamental political economic question.
Coase asked,"Who do we hold liable for causing a cost to another person?" i.e. committing a crime, or a lesser cost upon another equal?" He pointed out there were two possible ways;
1. Strict Liability(SL) = you cause the cost, society makes you pay; and
2. No Liability(NL) = You cause the cost, the person damaged pays you NOT to cost you in the future = the legal definition of extortion.
He measured cost by how much any action or change affects the Quantity of Goods & Services Exchanged(Q G&S XCed). Ergo, something that decreases Q of G&S is bad, while an action that increases it is good.
I show how and why Coase wrongly concluded there was no difference in Q XCed between SL and NL. His result was controversial, but our elites and corporations loved it because now they could change our laws to exempt themselves from Strict Liability and they have done so.
Why has Coase's result damaged society?
Corporations by legal definition limit Liability upon their owners to the amount invested. Needless to say, this creates incentives to perform illegal and negligent acts to increase corporate profits at the expense of others. Theses incentives have been recognized since the beginning of legal corporations and regulated against. As the recent Wall Street bailouts show, the corporations now own our politicians and regulators to our wider societies great loss. Relaxing Liability for the few and politically powerful will always occur unless every citizen can see the objective scientific reason why corporations must be rigorously regulated and instantly sanctioned for letting any of their owners and employees break our laws and regulations. I will prove below that to do otherwise will ALWAYS result in an immediate loss in the Quantity of Goods & Services Exchanged, that is the food, shelter, clothing, and medicine all must use. In short it reduces the quantity of time alive, it always kills someone at the margin.
Why and How was Coase Wrong?
Coase's basic analytical error is obvious once pointed out. It is called the fallacy of Non-Attribution. He did not use one of the goods in his chain of exchange described in his theoretical model as his basis of comparison = his money. In order to tie economic analysis to objective(we can all verify it with our senses)reality, economists use Walras Law, it is the fundamental mathematical theory used by economists to sum up the Quantity of Goods & Services Exchanged(Q 0f G&S XCed). It explicitly requires that a real good in the chain of exchanges being described, be used as a common denominator measure = numeraire = money. All real scientists require that our measures be objective for all of our predictions, not imaginary. Coase assigned imaginary money prices to the cattle and wheat used in his example.
Here is how his 'imaginary' mistake worked: Coase assigned $100 price to each cow and $1 a bushel to the wheat damaged. He had assumed that at the economic margin between profit and loss there were 10 cows and 1000 bushels of wheat produced under either No Liability or Strict Liability; ergo he always arrived at $2000 = $2000 produced under either system of Liability.
But once you use either the cattle or the wheat as your 'money', the wheat farmer(WF) has to pay some wheat to 'not be damaged' in the future; then switching to a system of No Liability instantly reduced the Q of G&S XCed. The reason is simple, since the WF has paid the CM 100 bushels of wheat(= time spent producing wheat) the WF has less wheat to buy the Cattleman 10 cows implying the CM now only has to produce 9 cows to get the same amount of wheat. Pretty sweet for the CM; less work, same pay. Not so good for WF same work, less pay. Ergo, the total Q of G&S XCed must decrease.
After I made this fundamental discovery in Economics; my mentors said I was right, but they refused to help me publish. At first I did not understand why, but later I realized this discovery destroyed the basis for limiting Liability for corporations. I determined to not let our scientific 'establishments' block my or any other scientist publicizing results that cost them power and money again. The result is the No 1st Cost List. A public place for Earth for all scientists to publish unpopular results.
Coase's wrong answer to his brilliant question earned him the Nobel in Economics in 1991, but it raises a raised for me a fundamental economic question. For my demonstration of Coase's error to be true, the question "How must we life forms measure costs to ourselves?" must be answered, i.e.
What do all life forms use as their personal objective measure of value under any set of circumstances?
Objective means we agree that we each can perceive the data reported with properly operating senses..
A measure of value must be the one thing common to everything any life form does. Life forms use this 'measure' automatically to determine how any change in circumstances affect them for good or ill.
Up to now, we Earthlings have used this "objective measure" unconsciously, or someone would have pointed it out before me: The Answer is: Our time alive in a life form = "one unit of time alive per unit time".
We all 'unconsciously' try to use as little of our time alive as possible to get what we need to stay alive. For good reason, when we take to long, we die. We have been up to now, unconscious own time cost minimizers. Unconscious gets you dead in a conserved universe.
1. No Liability can not be tolerated in a civilized society that wants to maximize the Q G&S XCed in a society of free and equal citizens. No Liability leads to tyranny.
2. This result leads directly to deducing what "Objective Measure Of Value" all life forms must use to maintain there existence in an entropic conserved universe. Explained elsewhere and below.
3. Coase got the Nobel prize in Economics for 'The Problem of Social Cost' Journal of Law & Economics, October 1960 where he stated that No Liability could be tolerated. I am owed a Nobel in Economics for showing why he was wrong, and more importantly, for deducing the implications that arise from showing how he was wrong.
4. I was told I was right in private by my mentors, but publication of my paper "The Objective Measure of Value Created by Exchange" was blocked. I was naive and did not fully understand why at first.
Not getting credit was fortunate for us all. I got mad, and invented the No 1st Cost List, so no scientist would ever be denied publication again for making a discovery that overturned existing theory.
The Worst Public Policy Result of Coase's Paper
Our wannabe 'aristocrats' = 'establishments' loved Coase's result. It gives them scientific cover to change the laws any which way they want to. Amazingly, these rule(law) changes always seem to make the people at the top better off at others expense. e.g. Now corporations can sell pollution rights. Another example, so called Tort reform = the little people can not sue to protect themselves from corporations = owned and controlled by the rich and powerful.
Why answering Coase's brilliant question leads to a true GUT?
Demonstrating how and why he was mistaken directly implies the answer to this question: What must the causal premise for a GUT be? A Grand Unification 'theory implies this question, "Unified with respect to what?". My "Objective measure.. ....etc" paper implied the answer. 'We' are what a GUT is unified with respect to; 'we' create scientific theories to describe the universe back to ourselves. A GUT must begin and end with 'us'. So if Coase was wrong; then "How must we life forms behave so as to maximize the quantity of Goods & Services Exchanged?". i.e. Thus what 'objective' part of 'us' do 'we' all use the same way, all the time, to measure what is good and bad for each one of us? It is the same 'thing' for all of us, and all life forms use it the same way all the time, unconsciously.
The answer is obvious, it is our time alive in a body, we each have only 24 hours a day alive = one unit of time alive per unit time as measured by the speed of light in a life form. bingo we are linked directly to e = mcc.
Why is This Result so Important to Ordinary Citizens?
In showing how and why Coase was wrong; I also showed why we must enforce Strict Liability for the Time Our Exchanges(XC)Cost Others. Otherwise, the Quantity of Goods & Services Exchanged (Q G&S XCed) decreases every time; that's the food we eat. In any society that uses money to run its exchanges(us); enforcing Strict Liability for the time our actions cost others is crucial for our long-term prosperity and survival.
The two biggest reasons;
1. Any civilization premised on "All men are created equal" can not call itself civilized until its citizens legislate the Rule Of Law we will enforce between us = Strict Liability for the Time Alive we cost one another.
2. An accurate scientific picture of how the 'Natural Laws' of the universe work with respect to ourselves rests upon understanding "How we use our time alive to get what we need to stay alive.".
A Natural Law: Demonstrating that 'We must enforce Strict Liability' upon anyone, big or small for the slightest amount of Time they cost others, or there will be an instant decrease in the Quantity of Goods & Services Exchanged(Q of G&S XCed) is a Natural Law.
The only reason we do not see the decrease in the Q of G&S XCed instantly in present real life, is central bank credit. It lets us postpone the evil day of reckoning for relaxing liability by creating debt that eventually can not be repaid, unless we want to die.
Limiting Liability for the rich and powerful e.g. Large corporations; can not be a good idea then.
How do we Change Our Present Political System?
Use the No 1st Cost List to reform our political and scientific system.
The N1CL's basic premise is that a network logically can only have one central place where everyone can meet to disagree in real-time.
The N1CL is the only way we can clean out this Augean stable of corruption in our leaderships in time to save our planet.
Dan Alter N1CL-1