24 October 2009
Market Pricing vs. Research
The federal insider trading charges against Galleon hedge fund founder Raj Rajaratnam are scary for the entire investment industry because they challenge its basic business strategy—making money in capital markets through superior research. Stock prices and market indices only reflect the information that traders possess at the hands of insiders. It is their job to obtain the best information possible. If they don’t, the prices that the market produces will be unreliable, and those who must depend on the market’s uninformed judgment will suffer the consequences.
Donald J. Boudreaux makes a good case for leaving control of insider trading to corporations themselves, in his essay in the October 24-25, 2009, Wall Street Journal, “Learning to Love Insider Trading.” In his best guess as to which corporations would have stronger and broader prohibitions on insider trading, however, he forgets the point he made earlier in the essay: the most demanding and vigilant of a corporation’s clients (i.e. stakeholders) is capital. Those companies whose strategies are most dependent on pleasing institutional investors will have to be freer and more honest with critical information on their strategies and products than those who are able to finance their business plans internally.
When a good poker player is prevented from coming to the table, the only one who profits is the house. Whom is the government’s insider trading prohibition meant to protect? Mr. Boudreaux quotes Harvard economist Jeffrey Miron on that measure’s harmful consequence of encouraging small investors to trade individual stocks. Surely we would all be better off to depend on diligent and powerful investigators like Mr. Rajaratnam for investment information rather than on the imperfect capital market pricing mechanism.
The federal insider trading charges against Galleon hedge fund founder Raj Rajaratnam are scary for the entire investment industry because they challenge its basic business strategy—making money in capital markets through superior research. Stock prices and market indices only reflect the information that traders possess at the hands of insiders. It is their job to obtain the best information possible. If they don’t, the prices that the market produces will be unreliable, and those who must depend on the market’s uninformed judgment will suffer the consequences.
Donald J. Boudreaux makes a good case for leaving control of insider trading to corporations themselves, in his essay in the October 24-25, 2009, Wall Street Journal, “Learning to Love Insider Trading.” In his best guess as to which corporations would have stronger and broader prohibitions on insider trading, however, he forgets the point he made earlier in the essay: the most demanding and vigilant of a corporation’s clients (i.e. stakeholders) is capital. Those companies whose strategies are most dependent on pleasing institutional investors will have to be freer and more honest with critical information on their strategies and products than those who are able to finance their business plans internally.
When a good poker player is prevented from coming to the table, the only one who profits is the house. Whom is the government’s insider trading prohibition meant to protect? Mr. Boudreaux quotes Harvard economist Jeffrey Miron on that measure’s harmful consequence of encouraging small investors to trade individual stocks. Surely we would all be better off to depend on diligent and powerful investigators like Mr. Rajaratnam for investment information rather than on the imperfect capital market pricing mechanism.
22 October 2009
Sovereignty is Out-of-Date
Max Boot’s Op-Ed in the October 22, 2009 New York Times, “There’s No Substitute for Troops on the Ground,” accepts the mindset of the American commander in Afghanistan, General McChrystal, to whom, naturally, every problem looks like a military one. According to that approach, the recommended U.S. strategy going forward is to increase troop levels.
Corruption in Afghanistan’s political system, in fact, is not a problem for most Afghans—it is expected. It is not the job of the military to “watch” the politicos in order to make government there work in an honest Western way. It is their job only to prevent anarchy in that country from threatening the security of the U.S. and the rest of the world. With today’s technology, this monitoring and pre-emption can be performed without troops on the ground, e.g. through unmanned drones.
Yes, such methods are sometimes brutal and indiscriminate. However, the combination of Afghan resistance to responsible government and the universal availability of sophisticated communications and destructive technologies has made outmoded the concept of national sovereignty. If a country is unable or unwilling to maintain responsible order among its residents, then the community of civil states is entitled and compelled to impose order on it, if only to protect their own safety.
Afghanistan is an outlaw nation. Even if Afghans prefer to live that way, we can’t allow them to jeopardize our own way of life. Nevertheless, it is not intelligent to use costly methods, like armed occupation, that only make it appear that we are doing something about it and do not actually achieve that objective.
Max Boot’s Op-Ed in the October 22, 2009 New York Times, “There’s No Substitute for Troops on the Ground,” accepts the mindset of the American commander in Afghanistan, General McChrystal, to whom, naturally, every problem looks like a military one. According to that approach, the recommended U.S. strategy going forward is to increase troop levels.
Corruption in Afghanistan’s political system, in fact, is not a problem for most Afghans—it is expected. It is not the job of the military to “watch” the politicos in order to make government there work in an honest Western way. It is their job only to prevent anarchy in that country from threatening the security of the U.S. and the rest of the world. With today’s technology, this monitoring and pre-emption can be performed without troops on the ground, e.g. through unmanned drones.
Yes, such methods are sometimes brutal and indiscriminate. However, the combination of Afghan resistance to responsible government and the universal availability of sophisticated communications and destructive technologies has made outmoded the concept of national sovereignty. If a country is unable or unwilling to maintain responsible order among its residents, then the community of civil states is entitled and compelled to impose order on it, if only to protect their own safety.
Afghanistan is an outlaw nation. Even if Afghans prefer to live that way, we can’t allow them to jeopardize our own way of life. Nevertheless, it is not intelligent to use costly methods, like armed occupation, that only make it appear that we are doing something about it and do not actually achieve that objective.
03 October 2009
How to Limit the Cost of Medical Malpractice
A weakness of our jury-trial system of justice is its vulnerability to emotional appeals – a tactic well-understood by publicists and advertisers. When it comes to medical malpractice suits, the most lucratively rewarded skill of trial lawyers is not legal analysis or good judgment, but convincing and dramatic argument. The rich fees earned by effective trial lawyers account for their motivation and influence-peddling strength derided by Phillip K. Howard in his op-ed article that appeared in the September 29, 2009 Wall Street Journal, “Why Medical Malpractice Is Off Limits.”
One solution to this distortion of truth-seeking in tragic cases of medical failure might be the institution of a cooperative healthcare-providers insurance fund. When a doctor or other healthcare provider can demonstrate his collaboration and consultation with other professionals, he would be cleared from subsequent liability suits. Any claims would be settled by arbitration before an expert board and its awards would be funded by a “suboptimal care fee,” that all health care providers would pay (presumably at a lower rate) instead of legal liability insurance.
A weakness of our jury-trial system of justice is its vulnerability to emotional appeals – a tactic well-understood by publicists and advertisers. When it comes to medical malpractice suits, the most lucratively rewarded skill of trial lawyers is not legal analysis or good judgment, but convincing and dramatic argument. The rich fees earned by effective trial lawyers account for their motivation and influence-peddling strength derided by Phillip K. Howard in his op-ed article that appeared in the September 29, 2009 Wall Street Journal, “Why Medical Malpractice Is Off Limits.”
One solution to this distortion of truth-seeking in tragic cases of medical failure might be the institution of a cooperative healthcare-providers insurance fund. When a doctor or other healthcare provider can demonstrate his collaboration and consultation with other professionals, he would be cleared from subsequent liability suits. Any claims would be settled by arbitration before an expert board and its awards would be funded by a “suboptimal care fee,” that all health care providers would pay (presumably at a lower rate) instead of legal liability insurance.
