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Limited liability - good / bad ?

ErenBalkir
Posts: 157
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8/31/2015 10:55:51 AM
Posted: 1 year ago
I have always found the idea that a company and the ones that own it are completely separate rather odd. This allows the owner to default on all his debts when the company fails (like Donald Trump going bankrupt 5 times) and hardly pay a penny. There seems to be very little risk and goes against my principles. Now, of course, I understand the reasons for limited liability, but it just seems like one of those laws made by businessmen to protect themselves, not to allow real competition. So I ask all you economics genius out there, why shouldn't we make the law so that a persons personal wealth must be also be used to pay off their debts.
ax123man
Posts: 317
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8/31/2015 11:46:13 AM
Posted: 1 year ago
ErenBalkir,
I'm going to make a prediction that you won't stay a progressive for very long. Why? Because your open minded and inquisitive, and that has already led you to reject minimum wage.

As far as limited liability, it protects the owners. One of those owners is me. I doubt I'd have a 401k invested in mutual funds if it were possible that I'd get a letter in the mail one day asking me to contribute say 5000$ toward the clean up of an oil spill (for example).

As far as Trump, first I'd ask why you bring him up rather than think of small investors. This is why non-progressives often will claim (and I think they are often correct) that progressives are driven by envy. I'm not saying that's the case for you, but I think you can see how it appears that way. Also, I think progressives fail to see the value that capitalists and entrepreneurs bring to the market economy. I mean what exactly is it you would like to happen when Trumps business goes out of business? Ideally those entrepreneurs & capitalists who fail are weeded out. I mean wouldn't they eventually be shunned and/or run out of funds to invest? I don't have the details in Trumps case, so I can't comment specifically on repeated failure. I'm curious about it, but not enough to really go research it.

Oh, one thing I can add re: Trump. The casinos in Atlantic city are HIGHLY politicized so I'm sure that factors into Trumps situation. In fact, aren't they all going bankrupt again as we speak? And I suspect politicians are likely busy again trying to bail them out. So that problem has nothing to do the limited liability. It doesn't include handing tax dollars to failed business to keep them afloat.

Lastly, I imagine the devils in the details when it comes to bankruptcy, but I seriously doubt that owners are not hurt. Certainly the price of public stock is going to be devastated in the case of a bankruptcy. Are you saying that you think Trump should have to start selling off other assets to pay down debt? Don't you think this would be a huge disincentive for entrepreneurs? And would this only include large stake-holders or would that also include everyone who owns stock?

Btw, you can always google search a site like this:

site:econlog.econlib.org "limited liability"

or for us radicals:
mises.org

the only place I know of for an intelligent progressive take is Krugmans blog:
krugman.blogs.nytimes.com

which is just one guys opinion. But I'm curious if there is a good site for this.
ErenBalkir
Posts: 157
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8/31/2015 1:04:18 PM
Posted: 1 year ago
At 8/31/2015 11:46:13 AM, ax123man wrote:
ErenBalkir,
I'm going to make a prediction that you won't stay a progressive for very long. Why? Because your open minded and inquisitive, and that has already led you to reject minimum wage.

As far as limited liability, it protects the owners. One of those owners is me. I doubt I'd have a 401k invested in mutual funds if it were possible that I'd get a letter in the mail one day asking me to contribute say 5000$ toward the clean up of an oil spill (for example).

As far as Trump, first I'd ask why you bring him up rather than think of small investors. This is why non-progressives often will claim (and I think they are often correct) that progressives are driven by envy. I'm not saying that's the case for you, but I think you can see how it appears that way. Also, I think progressives fail to see the value that capitalists and entrepreneurs bring to the market economy. I mean what exactly is it you would like to happen when Trumps business goes out of business? Ideally those entrepreneurs & capitalists who fail are weeded out. I mean wouldn't they eventually be shunned and/or run out of funds to invest? I don't have the details in Trumps case, so I can't comment specifically on repeated failure. I'm curious about it, but not enough to really go research it.

Oh, one thing I can add re: Trump. The casinos in Atlantic city are HIGHLY politicized so I'm sure that factors into Trumps situation. In fact, aren't they all going bankrupt again as we speak? And I suspect politicians are likely busy again trying to bail them out. So that problem has nothing to do the limited liability. It doesn't include handing tax dollars to failed business to keep them afloat.

Lastly, I imagine the devils in the details when it comes to bankruptcy, but I seriously doubt that owners are not hurt. Certainly the price of public stock is going to be devastated in the case of a bankruptcy. Are you saying that you think Trump should have to start selling off other assets to pay down debt? Don't you think this would be a huge disincentive for entrepreneurs? And would this only include large stake-holders or would that also include everyone who owns stock?

Btw, you can always google search a site like this:

site:econlog.econlib.org "limited liability"

or for us radicals:
mises.org

the only place I know of for an intelligent progressive take is Krugmans blog:
krugman.blogs.nytimes.com

which is just one guys opinion. But I'm curious if there is a good site for this.

Lets take that oil spill example. If you own a company that causes that spill and losing all your shipment of oil, you go bankrupt. Now, as a millionaire investor, you don't lose a penny, except for your small lost investment. Now, who do you think is going to clean that up? who? The government will be forced to. Now, surely, that seems wrong, gives the wrong incentive and doesn't punish those who caused the spill at all and costs society (and our taxes) to clean it up.

As for me being a progressive. I have very libertarian views on economics and the free market but two things make me a progressive. I think society should help the poor through redistribution of wealth. I also hate crony capitalism and private monopolies and think government should intervene.

I just read this quote by the libertarian Murray Rothbard and apparently true libertarians share my view.

"Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann's The Good Society. It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such individuals would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations."
ax123man
Posts: 317
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8/31/2015 4:33:50 PM
Posted: 1 year ago
At 8/31/2015 1:04:18 PM, ErenBalkir wrote:
At 8/31/2015 11:46:13 AM, ax123man wrote:
ErenBalkir,

Lets take that oil spill example. If you own a company that causes that spill and losing all your shipment of oil, you go bankrupt. Now, as a millionaire investor, you don't lose a penny, except for your small lost investment. Now, who do you think is going to clean that up? who? The government will be forced to. Now, surely, that seems wrong, gives the wrong incentive and doesn't punish those who caused the spill at all and costs society (and our taxes) to clean it up.

As for me being a progressive. I have very libertarian views on economics and the free market but two things make me a progressive. I think society should help the poor through redistribution of wealth. I also hate crony capitalism and private monopolies and think government should intervene.

I just read this quote by the libertarian Murray Rothbard and apparently true libertarians share my view.

"Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann's The Good Society. It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such individuals would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations."

I agree with Rothbard. However, like so many other areas, the government has taken over and monopolized the concept of corporations and limited liability. The question is "How would limited liability be different in a 100% free market than it is today?". I don't know the answer except to say, well, straight from Rothbard: "their liability is limited to the capital specifically invested in the corporation". So I expect the thing you seem to want to change wouldn't really change.

As far as oil spills, I'd recommend looking into the details of the 2010 Gulf Oil spill. You might be surprised what you learn. The truth is that politicians publicly claim they are on your side, but politics has ALWAYS been on the side of industry. For example, look into the erosion of private property rights during the early industrial revolution, which was the result of U.S. judicial system siding with industry. Then, when the level of wealth warrants reversing trends of pollution, instead of reinstalling property rights, the government introduces MORE controls to fix the problem that it ultimately carries much of the responsibility for.

And you have to consider not only how these types of thing work today, but how you would change it for the better. Would you agree that we sometimes have to accept oil spills if you want to use oil? If so, then the question becomes how to improve the situation. Rothbard would tell you that the solution is the elimination of the state altogether along with elimination of all public property. I don't imagine you can accept full on Rothbardian anarcho-capitalism, so the question gets more difficult, but I think inevitably leads to private property rights and the separation of business and state. If that's too much, the solution revolves around modern methods of dealing with negative externalities. I guess you might look to Milton Friedman in that case.
ErenBalkir
Posts: 157
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8/31/2015 7:41:32 PM
Posted: 1 year ago
I agree with Rothbard. However, like so many other areas, the government has taken over and monopolized the concept of corporations and limited liability. The question is "How would limited liability be different in a 100% free market than it is today?". I don't know the answer except to say, well, straight from Rothbard: "their liability is limited to the capital specifically invested in the corporation". So I expect the thing you seem to want to change wouldn't really change.

As far as oil spills, I'd recommend looking into the details of the 2010 Gulf Oil spill. You might be surprised what you learn. The truth is that politicians publicly claim they are on your side, but politics has ALWAYS been on the side of industry. For example, look into the erosion of private property rights during the early industrial revolution, which was the result of U.S. judicial system siding with industry. Then, when the level of wealth warrants reversing trends of pollution, instead of reinstalling property rights, the government introduces MORE controls to fix the problem that it ultimately carries much of the responsibility for.

And you have to consider not only how these types of thing work today, but how you would change it for the better. Would you agree that we sometimes have to accept oil spills if you want to use oil? If so, then the question becomes how to improve the situation. Rothbard would tell you that the solution is the elimination of the state altogether along with elimination of all public property. I don't imagine you can accept full on Rothbardian anarcho-capitalism, so the question gets more difficult, but I think inevitably leads to private property rights and the separation of business and state. If that's too much, the solution revolves around modern methods of dealing with negative externalities. I guess you might look to Milton Friedman in that case.

I am still not decided, probably gonna do more research but i found this quote and it sums up my problem i have with it.

"It also creates an incentive for corporations to engage in risky behavior, knowing that although the full benefit of any success will accrue to shareholders, the cost of failure or injury can be spread among shareholders (whose loss is limited to their initial investment), creditors (whose loss is limited to the amount of credit extended) and those injured by the acts of the corporation (whose loss is potentially unlimited)"

Unlimited damage to those affected such as environmental disasters, injuries or defaulted debts and only limited damage for the wealthy ones doing the damage. Do you vaguely get my problem with it?
ax123man
Posts: 317
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8/31/2015 8:01:26 PM
Posted: 1 year ago
At 8/31/2015 7:41:32 PM, ErenBalkir wrote:
I agree with Rothbard. However, like so many other areas, the government has taken over and monopolized the concept of corporations and limited liability. The question is "How would limited liability be different in a 100% free market than it is today?". I don't know the answer except to say, well, straight from Rothbard: "their liability is limited to the capital specifically invested in the corporation". So I expect the thing you seem to want to change wouldn't really change.

As far as oil spills, I'd recommend looking into the details of the 2010 Gulf Oil spill. You might be surprised what you learn. The truth is that politicians publicly claim they are on your side, but politics has ALWAYS been on the side of industry. For example, look into the erosion of private property rights during the early industrial revolution, which was the result of U.S. judicial system siding with industry. Then, when the level of wealth warrants reversing trends of pollution, instead of reinstalling property rights, the government introduces MORE controls to fix the problem that it ultimately carries much of the responsibility for.

And you have to consider not only how these types of thing work today, but how you would change it for the better. Would you agree that we sometimes have to accept oil spills if you want to use oil? If so, then the question becomes how to improve the situation. Rothbard would tell you that the solution is the elimination of the state altogether along with elimination of all public property. I don't imagine you can accept full on Rothbardian anarcho-capitalism, so the question gets more difficult, but I think inevitably leads to private property rights and the separation of business and state. If that's too much, the solution revolves around modern methods of dealing with negative externalities. I guess you might look to Milton Friedman in that case.

I am still not decided, probably gonna do more research but i found this quote and it sums up my problem i have with it.

"It also creates an incentive for corporations to engage in risky behavior, knowing that although the full benefit of any success will accrue to shareholders, the cost of failure or injury can be spread among shareholders (whose loss is limited to their initial investment), creditors (whose loss is limited to the amount of credit extended) and those injured by the acts of the corporation (whose loss is potentially unlimited)"

Unlimited damage to those affected such as environmental disasters, injuries or defaulted debts and only limited damage for the wealthy ones doing the damage. Do you vaguely get my problem with it?

I completely get the problem! But value comes from risk taking. It's risk vs reward. Also, don't underestimate the power of shareholders. They can and do sue corporations for negligence. There are so many other factors involved it really is hard to unravel it all. Good luck digging!