Someone at the Pentagon read Shockwave Rider over the weekend
Steve Schear
s.schear at comcast.net
Thu Aug 7 14:10:51 PDT 2003
At 12:21 2003-07-29 -0700, Tim May wrote:
>The problem is not with the idea of using markets and bets and Bayesian
>logic to help do "price discovery" on things like when the Athlon-64 will
>actually reach consumers, or when the new King of Jordan will be whacked,
>and so on. The problem is, rather, with _government_ establishing a
>monopoly on such things while putting suckers like Jim Bell in jail
>basically for espousing such ideas.
>
>And, as I noted, there are significant problems with government employees
>in a betting pool (gee, aren't even office baseball pools technically
>illegal? Haven't they prosecuted some people for this? Yep, they have)
>where they also have control over the outcome. Jim Bell used this as a
>payoff mechanism for assassinations ("Alice bets $1000 that Paul Wolfowitz
>will be murdered with his family on August 10, 2003")...the same logic
>applies to the government's dead pool.
The ideal securities market is one which does a good job of allocating
capital in the economy. This function is enabled by "market efficiency",
the situation where the market price of each security accurately reflects
the risk and return in its future. The primary function of regulation and
policy is to foster market efficiency, hence we must evaluate the impact of
insider trading upon market efficiency.
Insider trading is often equated with market manipulation, yet the two
phenomena are completely different. Manipulation is intrinsically about
making market prices move away from their fair values; manipulators reduce
market efficiency. Insider trading brings prices closer to their fair
values; insiders enhance market efficiency.
In traditional markets, insider trading appears unfair, especially to
speculators outside a company who face difficult competition in the form of
inside traders. Individual speculators and fund managers alike face
inferior returns when markets are more efficient owing to the actions of
inside traders. This does not, in itself, imply that insider trading is
harmful. Insider trading clearly hurts individual and institutional
speculators, but the interests of the economy and the interests of these
professional traders are not congruent. Indeed, inside traders competing
with professional traders is not unlike foreign goods competing on the
domestic market -- the economy at large benefits even though one class of
economic agents suffers.
steve
"A democracy cannot exist as a permanent form of government. It can only
exist until the voters discover that they can vote themselves money from
the Public Treasury. From that moment on, the majority always votes for the
candidate promising the most benefits from the Public Treasury with the
result that a democracy always collapses over loose fiscal policy always
followed by dictatorship." --Alexander Fraser Tyler
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