From: hallam@Etna.ai.mit.edu
Date: Sat, 6 Jul 1996 08:05:24 +0800
To: Gary Howland <cypherpunks@toad.com
Subject: Re: Noise: Re: Those Evil Republicans
In-Reply-To: <31DBA835.6EEA4806@systemics.com>
Message-ID: <9607052005.AA05904@Etna.ai.mit.edu>
MIME-Version: 1.0
Content-Type: text/plain



>First of all, "parasitic" is a very derogatory term to apply to these
>nations.  They are no more parasitic than out of town supermarkets.

A parasite is omething that lives off a host to its detriment. It is
easy for a small island nation to be parasitic off larger ones. The
problem for the USA, UK, Germany etc is that there are no larger 
nations for them to be parasites of, nor are their native peoples to 
steal land from or colonies to exploit. In short someone, somewhere
has to do some work.

>Second, you suggest Liechenstein as a useful model for a modern
>industrial society that has no control over its currency, but then go
>on to criticise Andorra as a useful model.  Why?

Actually I discounted both as models. I don't consider the ecconomy of 
a country of less than a million to be particularly informative in 
considering the ecconomies of countries of fifty or a thousand times that
number for the reasons advanced above.

>Third, you have missed the point I was making, that of Goodhearts law,
>which loosely states that "attempts by the government to regulate or
>tax one channel of banking business quickly lead to the same business
>being conducted through a different channel which is untaxed or
>unregulated".  Surely the fact that every large nation has its
>banking tax havens (eg. UK has the Channel Islands, the US has the
>Caribbean islands) is proof of this?

I'm very skeptical about any idea that is referred to as a "law". The
experience of science is that natural laws are no more constant than
human ones. In the social sciences such terms tend to indicate no more
than the existence of physics envy.

The greatest danger is when the title "law" causes the importance of
an effect to be mistaken. Just because an effect can be observed and 
explained does not mean that it is the only effect. To call something
a "law" is almost guaranteed to lead to biased analysis. 

Goodhearts theorem is overbroad as stated. The banking industry will 
clearly attempt to move to the most beneficial channels. That does
not necessarily mean unregulated. A banker's main product is trust.
The fact that a bank is regulated by government increases consumer
confidence and trust. If I place my money in Midland bank UK I know
that those deposits are guaranteed by the government of the UK. Even
if the bank itself becomes illiquid I can recover my money. The cost
of this security is regulation which I am as a customer happy to take
the benefit of.

The fact that a proportion of money is diverted through tax havens
does not imply that all money will be so diverted. The major banking
centers of the world continue to be London, Geneva, New York and 
Tokyo, all of which are heavilly regulated.

The final factor you exclude is that of ecconomic imperialism. Small
countries don't have unlimited opportunities to exercise their
sovereignty as the govt. of Panama discovered. While a country has
the theoretical right to become a drug trafficing haven it faces the
risk of sanctions ranging from ecconomic pressure to invasion and 
occupation. Similarly the Swiss govt no longer offers the same
anonymity it once did.


		Phill