One bad thing about blogging, or writing a lot, is that it forces one into a foolish consistency. It is hard to really explore new ideas, because tentative steps will be clumsy. In my new position I'm not incented to blog about finance or politics, and that gave me a lot of time to read as opposed to write. Net result: I'm getting baptized this Sunday (Grace Church, 9 AM service), and everyone's invited. That is, I'm becoming a Christian, not just one who occasionally went to church as a kid, but a real one that believes in Christ, loving God with all my heart, etc.

Most ex-atheists who become deists turn to Buddhism, so I thought I'd be clear why they are all wrong (Robert Wright!). I'd like to thank Mencius Moldbug, Mike Behe, Tim Keller, and hundreds more...Below are snippets (top and bottom) from my Christian apology: I came to Christ via rational inference, not a personal crisis. I haven't read an argument like mine for Christianity, though given everything written about him, I probably haven't tried hard enough.

A Rational Argument for Christianity (pdf here, w/ footnotes)

My book The Missing Risk Premium is a steal at only $15, but my first book, Finding Alpha, is a $65, which is a bit much for anyone not expensing their books. Finding Alpha goes over why the current asset pricing model fails, with lots of evidence, explains why economists still like it, and then in chapters 10-13 shows concrete examples of how investors have actually found alpha.

The risk begets return theory is 100 degrees wrong: usually generates a wrong sign, often no correlation. When it does 'work' it's like when the CAPM appeared to work in the 1970s, an omitted variables problem (ie, size effect & bias).

The fact that it should work but doesn't implies there's a something really rotten in economics, because it's not like you can add a skew preference and fix this (this is because if the skew preference has a sizeable effect, investors are not globally risk averse, which then turns everything upside down).  There's plenty of wrong stuff people learn in economics or college in general, but most such errors are clearly based on some left-right ideology, and this is not the case here.

You can download the individual chapters in pdf form here...

Table of Contents
Chapter 1 Risk Uncorrelated with Returns
Chapter 2 The Creation of the Standard Risk-Return Model
Chapter 3 The Empirical Arc
Chapter 4 Volatility, Risk and Returns
Chapter 5 Investors do not Mind their Utility Functions
Chapter 6 Is the Equity Risk Premium Zero?
Chapter 7 Undiminished Praise of a Vacuous Theory
Chapter 8 Why Relative Utility Generates Zero Risk Premiums
Chapter 9 Why We are Inveterate Benchmarkers
Chapter 10 Alpha, Risk, and Hope
Chapter 11 Examples of Alpha
Chapter 12 Alpha Games
Chapter 13 Alpha Seeking Applications
Chapter 14 Conclusion
References

Classical liberalism was the foundation of the American Constitution and is based on utilitarian reasoning that is still popular academically. However, the major parties use libertarian principles selectively: Democrats are pro-choice with respect to abortion, drugs, and gay marriage, while Republicans are pro-choice with respect to business, guns, and schooling. The Libertarian Party, meanwhile, caters to the few who feel very strongly about the gold standard, open borders, or marijuana.

In canonical models of economy, maximizing individual preferences is the self-evident goal. Consider all standard models of social welfare:

• Individuals maximize the present value of their wealth
• Individuals maximize the present value of their wealth and the equity in their society
• The top earners form a coalition with the bottom to expropriate the middle

In any case, a libertarian argument seems to be a perennial force, always arguing at the margin for lower taxes and regulation. Even in the latter case, which I think best reflect most market economies, the mandarins at the top and the patronage workers at the bottom need the entrepreneurs to generate enough taxes to subsidize them. Everyone would agree that some level of taxation less than 100% is optimal due to the incentive effects (for example, France’s 2014 75% top rate tax was quickly rescinded back to 45% because of weak revenue). The question is merely what that number is. Politics would be a boring battle between those who want taxes to be 40% and those who want them to be 50%—the libertarians vs. the egalitarians, each acknowledging that their difference of opinion is merely a matter of degree.

Strangely, this is not the case, and libertarianism is not foundational within either party.

How Libertarianism Crashed

During the West’s period of tremendous growth prior to World War I, countries consisted largely of aristocratic Republics. Just as Athens only allowed male citizens to vote—approximately 10% of the population—in early America, most states had property and other requirements that limited voters to society’s elite, with the result that less than 20% of the population voted throughout the 19th century. Most Americans then were practicing Christians, which implied they favored moral equality among individuals, but also the idea that the government exists to protect individual free will rather than individuals living to support the government.

No one can read the US Constitution without concluding that the people who wrote it wanted their government to be limited severely; the words “no” and “not” as applied to government power occur 24 times in the first seven articles of the Constitution, and 22 more times in the Bill of Rights. This is because the Puritans, Quakers, and Cavaliers who dominated early America all thought living under the others’ ways would be tyranny, and they were right.

In such an environment, libertarianism was a strong ideology. John Locke’s liberalism focused on life, liberty, and property, a free economy with minimal government interference (zero government is a straw man caricature). To the extent that people are poor, unconditional charity makes them worse, as poverty is primarily the outcome of a lack of purpose and discipline rather than food and shelter. Thus, workhouses for the poor had codes of conduct and required hard work. Regardless of circumstances, the poor can achieve better lives. The formula is neither complex nor mysterious. The key choices are to work steadily and stay on the right side of the law. For example, if one follows 3 simple rules—finish high school, get a full-time job and wait until age 21 to get married and have children—only 2 percent of such people are in poverty today.

Then, two things happened. First, Democratic Republics began to emphasize democracy over republicanism. Universal suffrage occurred in the early 20th century in most Western countries, and more offices became directly elected (e.g., Senators). Second was the death of God, as intellectuals believed organized religion was simply a relic of the past, like our belief in the divine right of Kings. No longer was it sufficient to merely be right with God, but rather, to do good on earth by minimizing suffering. This new progressive ideology was based on the idea that if we apply scientific reasoning to societal problems, as we did to physical questions, we can rid society of poverty just as we eliminated smallpox.

In the 1920s, American farmers were suffering because the WWI boom in agricultural exports was reversed, causing agriculture and land prices to fall. Farmers wanted the federal government to intervene in the market by buying crops at high prices and dumping them abroad cheaply, so Congress passed a farm relief package. President Coolidge vetoed it. That was the last time our federal government adopted a libertarian approach to a national crisis. Democrats became a party energized by economic intervention, as there is no limiting principle to ever more 'democracy,' meaning state regulation. Republican doctrine became dominated by conservative Christians more worried about protecting “traditional values” in general than liberty. The net result has been to increase the size and scope of the government consistently.

Libertarians Need a Tribe

Many libertarians, such as business owners or professors, are somewhat successful, and they benefit directly from being left alone. This is fine if you are talented and ambitious, but the majority is not. Either libertarians will have to wait until a poll tax is reinstated in which only the wealthiest 10% vote or they must appeal to people who desire primarily to become part of something larger than themselves. Utilitarianism does not capture this, because if maximizing one’s income is all that matters, one only has to convince a majority that even the unskilled will make more money in a more libertarian society. Yet merely having more absolute wealth is not very energizing for those in the bottom half.

The little platoons of life that take us outside ourselves are tribes that protect and promote us. Tribalism makes a lot of sense, in that when you are navigating within an atomistic world, having a set of insiders amongst whom you have influence gives you an advantage in the same way a hoplite phalanx can defeat a rabble. A tribe not only helps us materially but also addresses the universal craving to be appreciated. People want to be part of something larger than them, something they are proud of, that values them. To merely make more money but still be relatively poor, is not an attractive objective because it implies they are not valued. There are many such groups to join, as people are interested principally in doing well among those to whom they relate, groups in which they feel most appreciated. These typically are based on ethnicity, profession, or a common cause.

Two of these tribes are toxic. Ethnic tribalism is a scourge, and the best way to stop discriminating based on race is—as Justice John Roberts puts it—to stop discriminating based on race. Encouraging blacks, Hispanics, women, gays, to form advocacy groups that champion their own self-interest, not by changing what they can control (themselves), but rather by changing others (meet our quotas to rectify discrimination), does not help disadvantaged groups and encourages dissension. Top-down attempts to create ethnic equity encourages people to become more ethnically tribal, where people are first judged as part of an ethnicity and then as an individual.

Economic tribes, such as trade unions, are simply factions that benefit from state-sanctioned monopolies. For example, when a city sets a cap on the number of taxicabs we are helping current taxicab owners, but not the net of all potential taxicab drivers and their customers. Thus, auto and steel union were very strong in the 1950s, and those 1950s members did quite well, but the cost was fewer such jobs in the future decades; teachers do not have to worry about losing their jobs for poor performance, but then education is the one area of the economy where real costs of educating students keeps going up, while the real cost of making most things (corn, cars, computers) tends to fall. Some think everyone should be able to work in a field that has monopoly benefits like tenure, so people do not have to deal with the anxiety and costs that come with losing a job. Yet, the collective costs of this would be to eliminate productivity growth, as then labor would not reallocate to where it is best needed. The essence of the market’s superiority to socialism is that in market economies capital and labor is allocated away from where it destroys value and towards where it creates the most value.

That leaves those with a common cause, and as religious zealots founded liberal America, we should go back to those roots. Since the 19th century, Libertarians have derided Christianity because of its pious tendencies, especially with respect to sex and drugs, while Christians are skeptical of libertarians, who seem to encourage a disorderly, hedonistic, and degenerate society. However, they can compromise, because these fears are overblown and they are more simpatico than they realize currently.

Christians should appreciate Libertarians because one’s relationship with God is direct, from one’s heart to God. Libertarianism does not promote sin; rather it allows it. Christians should know they cannot fix the world with laws designed to prevent people from sinning because the world has always been sinful. Protecting people’s right to sin makes a Christian’s conduct more pure because then one is not merely following a rule, but making an authentic choice. In Christianity, it is easy to see how a simple life performing deeds in the humility that comes from wisdom generates the appreciation of a loving God, so merely having this freedom is sufficient to live a righteous life.

Libertarians should appreciate Christians because their virtues are synonymous with the bourgeois and stoic virtues libertarians have always prized; it is a simple argument that a small government is consistent with Christian ethics. Honesty, discipline, courage, justice, temperance, and wisdom are all praised highly in the bible, and create a flourishing society. The recent success of gay marriage and the last century’s failure to prohibit alcohol should convince Christians that morality should be the provenance of mores, not law, lest that authority turns around and force its morals on you. Both Trump and Republican convention speaker Peter Thiel highlight that LGBT issues are a distraction from the bigger issues, and they are right: the federal government should not be defining marriage or what drugs people ingest in their homes; that is the essence of liberty and the exercise of our God-given free will.

If Christians learned about the consilience of libertarianism and Christianity, they could be powerful advocates for libertarian principles in the public sphere, and this objective would appeal to non-Christians afraid of a crypto-Fabian strategy of converting everyone to Christianity. Most importantly, libertarianism would then appeal to the untalented, in that libertarians offer that demographic nothing that would give them a sense of being valued. The Tea Party had strong support from Christians but seemed almost embarrassed by them, yet “smaller government” as an objective has no traction unless it can appeal directly to those who are not among the talented tenth. Christians see all men as made in the image of God, as moral equals, giving them a status they probably will not achieve economically in their lifetimes. That is, Christians address people’s longing to be appreciated, not merely regarded as necessary unskilled labor.

It’s hard to adopt an ideology where you dislike the other people who hold it, and Christians and libertarians are at extreme ends in their lifestyle choices. They should remember that this difference is really similar to the difference they share within their own tribes, in that some libertarians are all about drugs, others gold; some Christians emphasize faith, others acts.  The key, as our American founding tribes understood, is freedom. Posterity in their own lives and, perhaps, the next, will punish or reward those who make foolish choices with their freedom.

Another tribe to encourage is the nation, in the case of the USA, Americans. As we are a diverse country, this cuts across ethnicities and , so it is a uniquely inclusive tribe, all the more salutary if we add the objective of minimizing foreign entanglements (aggressive nationalism is bad for everyone). We have enough problems managing our own 320 million people. Yet the key here is helping those on the bottom. Open borders encourages employers to hire immigrants over residents for unskilled labor, because 3 billion people survive on less than $2 a day, and their influx keeps low-skilled wages from rising. This only helps low-skilled immigrants and the rich who employ them. Labor participation rates for those with only high school educations have fallen dramatically since 1970, and this is especially pernicious because such people are especially helped by developing the discipline and soft skills that come from having a job.

Lastly, the long-run implications of importing low-skilled immigrants seems certain to move our nation’s away from classical liberalism. Immigrants today are encouraged to retain their culture as opposed to 100 years ago when Henry Ford forced his immigrant workers to learn English and civics. Democrats want more immigrants, taxes, and regulations because they encourage each other. Even libertarians like Milton Friedman believe you cannot have a welfare state and open borders, so this is not hypocrisy, in that every principle at some point runs into paradoxes (e.g., Popper's paradox of tolerance).

Liberaltarians

Brink Lindsey tried to argue for a left wing Libertarianism, which he called Liberaltarianism. It got nowhere. The top-bottom coalition is the key to the left and the reason that the Democrats have strong support from the poor and the elite. The poor benefit from direct aid, and the middle class Left includes many holding sinecures with average salaries but no chance of losing their job and a hefty guaranteed pension.

Then there are the new victim groups. From the book of Exodus to the Civil Rights struggles of the 1960s victims have been portrayed as suffering because they are noble, which gives them a sense of meaning and purpose. Seizing on Bertrand Russell’s observations that all movements go too far, the left has taken its Civil Rights victory to such an extreme that it now sees every disparity as modern day Jim Crow, if not actual slavery, so that any member of a historically disadvantaged demographic deserves its own stakeholder status in every jobs program or regulated industry.

The elite left contains the typical collection of baptists and bootleggers. That is, those motivated by principle, and those motivated by hypocritical self-interest. The latter include businessmen who make money off government regulations, especially those regulations practice hurt competition, and thus we should not be surprised that billionaires and Fortune 500 CEOs prefer Clinton over Trump: many capitalists, especially those adept at managing our current regulatory labyrinth, do not want more competition. Then there are simpler rich, like Al Gore or Jose Manuel Barroso, who become big company executives for their political connections.

The principled left elites, however, don’t really like the poor—few choose to live amongst them—they just really hate the rich. Since Plato, intellectuals have resented a market-oriented economy. In their formative years, these people did what their teachers asked very well, and thought their intellectual skills implied objectively that they had the highest merit in society. Yet outside of the classroom, lesser students dominate the intellectuals. Money is not the main point; it is the implication that these intellectuals are not appreciated as much as they feel entitled to be. The intellectual wants society to be as it was in school, the formative environment in which they excelled and were praised accordingly. This is why the verbally adept are more liberal than the quantitatively adept because the latter tend to obtain more rewards from teachers.

The free market resembles the anarchy of the schoolyard, in which jocks and ebullient extroverts have higher status, which is what makes intellectuals’ antipathy so visceral—not because of resentment against an abstract system—but rather against the type of people who have bested them. That is why intellectuals do not mind entertainers and professional athletes making millions, as they never considered these people competition within their social circles.

The Left used to be the party of social liberty, but the past 30 years has shown that this principle was merely a tactic adopted when they were in the minority. Democrats are now pushing for more restrictions on speech or forcing bakers to make same-sex wedding cakes because such behavior is not merely an individual choice, but evil. The aggressive moralism of the old Puritans now is the property of progressives, who fight evil motivated by righteous indignation. If you have a higher conception of the good, it seems fine to those in power to push it as far as possible in the public sphere, as most people think their  normative values are objectively good, not mere preferences.

Progressives think that more democratic government power is better in every area of our lives; there is no limiting principle to democracy, including liberty. Progressivism is politics under the assumption that every current problem has a top-down solution and that government is pragmatic, its trial and error mechanism no different than the market. They find government solutions better than emergent phenomena because the latter is not democratic. This leads to an ever growing set of democratically implemented state powers.

Given the large number of patronage jobs (e.g., the SEIU and Teacher's unions), the envy that motivates intellectuals, or all the money big corporations have invested in satisfying existing regulations, libertarians are not going to get anywhere on the merits of their economic arguments with the Left, as redistribution and regulation are their foundational motivation, and what energizes their intellectual leadership: managing others via decree, not pell-mell competition. The Left  merely contends with the Laffer curve the way a parasite contends with the constraints of its host.

Top-down Policy Fails

Libertarianism remains our best hope for tomorrow because it works. One might think that minimizing suffering is a humble goal, eminently achievable via policies designed and managed by rational bureaucrats. Yet as Walter Bagehot once wrote, “the most melancholy of human reflections, perhaps, is that on the whole, it is a question whether the benevolence of mankind does more good or harm.”

• If you give single mothers more money for being single mothers, you get more single mothers, and thus, in 50 years illegitimacy has soared, the effects of which no government program can offset.
• Prohibition encouraged crime and disrespect for the law, and hurt the majority of Americans who drink responsibly.
• We put a $1M surtax on salaries in 1992, which gave firms an incentive to generate more stock options, and exacerbated the internet bubble of 2001.
• Government agencies and regulators encouraged mortgages with no money down and no income verification because home-ownership was correlated with good things, but then the housing bubble burst, leaving the poor no better off than prior to this boom-bust cycle.
• We created income security for older Americans, but now few have saved for retirement, fewer are connected to family members, and when the social security Ponzi scheme hits the wall it will create an unprecedented disaster.
• We made it harder for banks to foreclose on delinquent properties, but this increased the bank loss rate, which goes into the pricing of new loans, thus mainly hurting new borrowers for something they didn't do
• The Volker rule discourages banks from proprietary trading, so in the next crisis there will be less liquidity (eg, see  July 8 2015) 
• More regulation means higher fixed costs and less banking competition, bigger banks to amortize that fixed cost
• When Teddy Roosevelt set up the Park Service in 1903 to manage Yellowstone, they tried to increase elk by eradicating wolves, but then the elk ate all the grasses and trees the beavers used, so the beavers vanished, causing the meadows to dry up, and the trout and otter to disappear. 

Society is an evolving, dynamic system, and top-down correctives usually make things worse. The inherent weakness of a democracy that elects a powerful government is that the intelligence of half the voters is one standard deviation below that of the average college graduate. To the extent these people are unable to manage their self-interests, they are even less competent to judge who has the best plan to manage the self-interests of others.

Further, those in government are not like the altruistic, social-welfare optimizing angels modeled by academics, but rather, just as selfish as any businessman; they simply want government-sanctioned monopolies that restrict competition under the pretext of protecting consumers or ensuring quality. In this environment, a top-bottom coalition built on political patronage has an obvious advantage and inevitably creates a bureaucracy that measures productivity by inputs instead of output.

Libertarians have an endless list of anecdotes that make for excellent debating points, cases in which government rules and regulations have been instrumental in the failure of our inner cities, or skyrocketing healthcare and education costs. As regulations have proliferated and sundry overlapping agencies promote vague objectives based on worst-case scenarios, there are no longer any shovel-ready projects (most of the 2009 $700B stimulus simply went to transfers and shoring up deficits, 3% was spent on infrastructure).

For the past century, progressives have argued for top-down policies, and macroeconomics has been a major influence because it presumes that if you add up the various components of GDP—consumption, investment, state spending—you can fiddle with the money supply or fiscal policy and get on a “turnpike” to optimal growth. That has never worked. In contrast, Aristotle taught that the primary task of the state was to encourage virtue, as a society of virtuous citizens who interacted freely would create a flourishing society, bottom up, without direction. The focus, again, should be on individual virtue and responsibility, rather than top-down solutions that treat individuals as agentless ciphers.

Trump

It’s clear that at the margin, Trump’s bias is towards lower tax rates and fewer regulations, Clinton’s bias the opposite. As a libertarian, that’s key. Unfortunately, Trump’s cross-over appeal was that he wasn't a prudish Christian like Mitt Romney yet anti-PC enough to imply he'd stop persecuting Christians, which correlated with the remarks that probably doomed his candidacy.

Trump dominated Republicans because he combined the libertarian goals of lower taxes and regulation that all other Republicans were for with non-libertarian immigration and foreign trade restrictions. This appeals to the many low-capital wage earners who are worried that cheaper foreigners are usurping their jobs. An immigration policy like those of Australia, Canada, Singapore, or New Zealand would allow people who can support themselves to come here, and thus would protect the unskilled, whose only bargaining chip is scarcity.

We need to move away from Libertarians who still believe the key issues are the gold standard and legalized marijuana, to those who will embrace Christians, and American workers over unskilled immigrants. Christians need to embrace libertarian principles because it alone offers them protection against a state that finds their values despicable and increasingly illegal. The key is not to agree on ends, as hard-core libertarians and Christians will always disagree on matters relating to swearing, sex, drugs, and God. The focus should be on what politics should be about: setting up a system in which people with disparate goals can get along and flourish.

University of Toronto psychologist Jordan Peterson has gained YouTube notoriety recently for speaking out against social justice warrior lunacy. However, it should be noted that his book, Maps of Meaning, is a very profound one. I heard him give a talk in which he mentioned initially that he was interested in economics, but was put off by the undefended assumption that people want to maximize their wealth. Most people want to be wealthy, of course, but they also want to have a fulfilling life, which is much more complicated. The larger existential question is, “How do I invest my time now to have the best life?” This does not lend itself very well to mathematical expositions.

His basic premise is that we develop maps of meaning to identify our best life. The world appears to us not in the form of objects, but rather things with an inherent valence or meaning according to how well they help us thrive. Thus, a cliff-edge does not represent a mere vertical descent, but rather, physical danger. Our world is filled with things, people, and ideas that all have meaning to us, and we arrange them in a map according to the way in which we see they have interrelated effects on our lives.

Human life is a narrative quest, focused on a story we find useful and true, an arc that leads to something profoundly good and beautiful. We attend to things we believe will lead us to this objective most efficiently, and thus, all of our tactics, strategies, and summum bonum are tied in a speculative endeavor. This conscious mode of thought is grounded in a metaphorical language that derives from narratives that use universal archetypes in the way that a good fictional character can describe a universal existential problem better than dry prose (e.g., Job, Holden Caulfield, or Anakin Skywalker).

Eventually, our maps develop anomalies, events that do not fit, because maps are always simplifications of reality. A sufficiently large anomaly is similar to finding that your microscope is out of focus: everything becomes a blur, chaos, and it is not obvious in which direction to adjust the lens. It is difficult for people to improvise solutions to their problems, as failure cascades through a complex system. In such a scenario, the first response is to freeze, as rats will freeze initially when moved to a new cage, because all they know is that their current environment is unmapped. Gradually, they begin to sniff around for predators, food, and other rats. Once they perceive that the danger is diminished sufficiently, the rat begins to explore the cage and do normal rat things.

Thus, when you learn that your partner is unfaithful or you are not good at your job, you have to rethink some fundamental assumptions about the meaning of your partner and job, and adjust your life accordingly. This happens until death, hopefully less frequently as one becomes older, but certainly at least several times. Alas, many ignore anomalies using cognitive dissonance, but the cumulative cost of not facing one’s errors leads to frustration and existential angst (which explains many angry bloggers).

What is interesting is the way in which this epistemological process is akin to Gould and Eldridge’s punctuated equilibrium theory, in which evolution consists primarily of stasis, but occasionally of significant change. The maps people use to understand the world do not change in a linear way, as if they were updating their Bayesian prior daily, but rather people update only when their prior fails massively.

Peterson and Business Cycles

This seems relevant to business cycles. Previously, I riffed on Batesian mimicry, the idea that business cycles focus on new things each recession because idiot imitators and outright frauds are drawn to businesses that seem most bulletproof to pointy-headed bosses. Thus, just as colorful poisonous snakes imitate colorful non-poisonous snakes (who then save on metabolic resources with the same benefit), putting “dot-com” after your company’s name was a great strategy circa 1999, and giving mortgages to anyone with a pulse was a great strategy in 2005. Failure is endogenous in humanity’s crooked nature.

However, a problem remained; why does investment decline across industries in each recession? Why do industry-specific problems spread into disparate sectors such as consumer, electronics, housing, etc.? Using the Peterson theory, when something sufficiently anomalous happens, investors see chaos because it portends a major epistemic flaw in their maps. Thus, it is best to wait and see where their maps are wrong before investing more. Finding a new paradigm takes time. One rarely understands an anomaly fully, even in hindsight. Even today’s economists disagree about the essential cause of the Great Depression of 1929, or the more modest 1990 recession.

Thus, in real-time, anomalies reach tipping points that halt investment, because deferral is not nearly as costly as is a bad investment. Recessions last approximately 12 months on average, so eventually, people determine the anomaly’s essence or at least become comfortable with a new, imperfect map of the business landscape in which chaos is contained, and activity resumes. Contractions are not equilibriums, because people naturally want to explore the uncharted, as exploring is one of Jaak Panksepp’s instinctive mammalian affects. The breadth of a business cycle is the result of the catastrophic nature in the way in which we update our worldviews.

Yet, every 10 years, economists develop a new model that the next cycle does not fit. Consider the recession in 1975, which focused on oil, in 1982, on interest rates, in 1990, on commercial real estate, in 2001, the internet bubble, and in 2008, residential housing. Each one is sui generis, as the prior indicators fail to work. In the most recent crisis, when mortgage indices began to falter in early 2007, no economist thought it was a major problem because these had not led to recessions in the past. A few funds failed, but everyone thought it was contained.

Then, larger mortgage-related firms continued to fail, and it became clear that the problem was bigger than anyone thought. In the fall of 2008, it seemed that the sky was falling, as people were unclear whether the problem was centered on residential housing, all securitizations via some arcane math error (copulas), or some unknown financial positive-feedback loop. Even now there is no agreement on the genesis of the 2008 recession, and like the fall of Rome, the list will probably remain forever long, even though I believe the only necessary and sufficient condition was the flawed assumption about diversified housing prices (no one thought a nationwide nominal housing price decline was possible).

Interestingly, the government caused another anomaly by trying to make things better. In an effort to help solve the problem, the government instituted many new rules that made it easier for delinquent homeowners to remain in their houses without paying, and required a costly legal process for lenders to evict anyone (foreclosure now averages over 600 days). Further, the government filed numerous lawsuits that punished banks for making the same loans it had encouraged previously, but such is politics. Thus, mortgages went from a 90% to a 20% recovery rate assumption, and half of total bank profits in this recovery went to pay fines, so that banks have had one of the weakest post-trough recoveries of any expansion. This has contributed to our anemic expansion, and highlights that one also must foresee the clumsy government response to any anomaly, which makes the problem much more intractable.

At some point, the initial mortgage bond anomaly was seen as evidence of a substantive flaw in people’s business models, but it was unclear what that flaw was. They saw chaos and turtled in, froze like rats in a new cage, and investment declined across the board, which is the essence of a recession. When bad information arises, this causes all investors to put less weight on their Bayesian prior about the future, so expectations shift more as new information arises, which is why volatility increases during incipient downturns.

The Maps of Meaning business cycle model highlights some key characteristics of recessions that standard business cycle theories do not:

• The anomalies were real, and exposed profoundly flawed assumptions in certain common business practices. Specific business models were not viable, evidenced by large sustained exits in key sectors after each recession. This is important, because some economists believe recessions are caused by self-fulfilling, but groundless shifts in expectations; many Keynesians lie here (see, sunspot theories of recessions).
• After 1990, commercial real estate remained depressed for several years 
• After 2001, many internet companies exited
• After 2008, mortgage companies and housing suppliers exited
• Anomalies arise in different parochial aspects of the economy. 
• A macro model that looks at aggregates will miss the essence of the shock
• Attempts to counter business cycles via aggregate policy never work.
• Simply lowering interest rates, or increasing government spending does not address the issue, which focuses on a particular business flaw, not an aggregate one
• Once the shock is understood and contained, investment resumes, not because of any top-down stimulus, but rather simply because of cognitive adjustment

When investors perceive a large anomaly in their Weltanschauung, their natural reaction is to stop investing in new things, because regime shifts take place after every cycle and if one occurs in your business, you are toast if you build a new plant or keep those workers you hired in anticipation of growth in your now-discredited map.

The Next Big One

It is difficult to predict the future, but I would suggest several large areas that seem unsustainable, yet have witnessed fantastic growth over the past several recessions.

• Municipalities are accumulating large pension deficits because it is easy to promise future retirement packages and allow the next generation of politicians to deal with it. Historically, muni bonds have been rock-solid investments, but if they become risky and all municipals face a new default premium, how much would they have to cut back their expenditures?
• College tuition has outpaced the inflation rate for two generations, and the number of people going to college also has been increasing, creating a massive increase in college revenue. Yet now, many graduate lack skills for which people are willing to pay (e.g., journalism), so that many students will never recoup their tuition and opportunity costs. When prospective students begin to realize this, an unprecedented downsizing will occur.
• The Fed has increased the money supply at an unprecedented rate over the past 10 years, and 8 years into an expansion, the US federal deficit is 4% of GDP. European nations are no better, and several, such as the PIGS, are worse. This portends a government bond collapse and rampant inflation.
• 40% of US corn is used for ethanol, a low-octane, corrosive fuel that exists only because of federal mandates, and 15% is used in high-fructose corn syrup, which is inefficient and less healthy than are other sweeteners, and is propped up by federal mandates as well. The effect on our aquifers is unsustainable.

When one of these starts to blow, people will believe at first that it will be no problem, because none of these areas has been key in any business cycle since WWII. However, when firms continue to fail, panic will ensue across the board, because if one of these areas goes down, another, or all of them, might, and the most sensitive businesses related to these areas are not obvious (land for farmers? computers for students?). Further, municipal debt, colleges, and corn could be accelerators rather than instigators of the next recession, in the same way unprecedented US state defaults prolonged the 1837 recession until the mid-1840s. Eventually, as the effects are contained in certain sectors of the economy, the economy will recover; again, recession is not an equilibrium.

Unfortunately, this time it all will occur with a banking sector that is precluded from backstopping obvious market overreactions because of the Volker rule. This will enhance the downturn, but unlike the May 2010 flash crash, it will last much longer.

The take home lesson? Buy cybercurrencies.

My son is going to college this fall, and I wanted to give him a set of my favorite quotations. As his name is Max, I titled the book 'Maxims.' With only a little work in formatting, I was able to create a paperback and ebook on Amazon, so that I basically did this for the price of the New York Times.  I made it for him, but you can buy it on Amazon for $5, or $3 for the Kindle version (see here).

Obviously, we want our kids to appreciate the things we think are really important. Whether our kids will agree with us is up to them, but we can hope. But as I'm starting to lose him to the real world, I wanted comfort that if I get hit by a truck, he'd have access to some quotes that can help him even if I can't. So, I put a bunch of quotes (around 710) I've been compiling for decades into a book, in 7 sections: Wisdom, Purpose, Virtue, Life, Psychology, Science, Politics. About 15% of the quotes are unattributed, because when I wrote them down, I lost the source, and it doesn't show up in a Google search (some obscure, some probably my artistic license).

Here's a sample:

Wisdom

• Good judgment comes from experience, and experience comes from bad judgment.   ~ Barry LePatner
• Know thyself. ~ Delphic Oracle
• Only the simplest mind can believe that in a great controversy one side was mere folly.   ~ AJ Kane
• The art of being wise is knowing what to overlook.   ~ William James
• The beginning of wisdom is this: Get wisdom. Though it cost all you have, get understanding. ~ Proverbs 4:7

Purpose

• Seek, above all, for a game worth playing.   ~ Robert S. de Ropp
• The best use of life is to spend it for something that will outlast it.   ~ William James
• The deepest principle in human nature is the craving to be appreciated.   ~ William James
• Purpose is what gives life a meaning.  ~ Charles Henry Parkhurst
• If you buy the why, the how is infinitely bearable.   ~ Friedrich Nietzsche

Virtue

• It’s easy to have faith in yourself and have discipline when you’re a winner, when you’re number one. What you got to have is faith and discipline when you’re not a winner.   ~ Vince Lombardi
• Love is joy accompanied by the idea of its cause.  ~
• Love is the only virtue that is an end in itself.  ~
• It has been my experience that folks who have not vices have very few virtues.   ~ Abraham Lincoln
• Gratitude is the healthiest of all human emotions. The more you express gratitude for what you have, the more likely you will have even more to express gratitude for.  ~ Zig Ziglar

Psychology

• Many can bear adversity, but few contempt.   ~ Thomas Fuller
• We all have the strength to endure the misfortunes of others.   ~ Francois de La Rochefoucauld
• All anger is self-righteous anger. There are few cynical opportunists, more often ideologues and moralists.   ~
• Anything you're good at contributes to happiness.    ~ Bertrand Russell
• Men need sex more than women, and this gives women power over men.   ~ Midge Decter

Life

• First one must live, then one may philosophize.  ~ Latin Proverb
• Criticism is always a kind of compliment.   ~ John Maddox
• Everything ends badly, otherwise it wouldn't end.   ~ Koglan the Bartender
• Everything is always decided for reasons other than the real merits of the case.   ~ John Maynard Keynes
• What is said when drunk has been thought out beforehand.   ~ Flemish proverb

Science

• When a debater’s point is not impressive, he brings forth many arguments.   ~ The Talmud
• Real thinking is that which can force you into an answer whether you liked it or not, and fake thinking is that which can argue for anything.   ~
• The best way to have a good idea is to have lots of ideas.   ~ Linus Pauling
• Laymen feel that facts are easy and theory is difficult. It is often the other way around.   ~
• Bayes' theorem suggests that given two persuasive speakers, you will find those which most agree with you as most persuasive.   ~ Richard Posner
• A little inaccuracy sometimes saves tons of explanation.   ~ HH Munro

Politics

• To be free is to be subject to nothing but the laws.  ~ Voltaire
• Our country's founders cherished liberty, not democracy.   ~ Ron Paul
• Justice is Equality…but equality of what?.   ~ Aristotle
• The more corrupt the state, the more it legislates.   ~  Tacitus
• The most melancholy of human reflections, perhaps, is that on the whole, it is a question whether the benevolence of mankind does more good or harm.   ~ Walter Bagehot
• Never forget that everything Hitler did in Germany was legal.   ~ Martin Luther King Jr.

For the past couple of centuries technology empowered the state, put more things under its control. They have ultimate custody of all your financial assets, and custody is nine-tenths of the law. You simply can't hold $1M in financial assets in a form where 'The Man' can't grab it if he finds you an enemy of the state, which in many states includes righteous men.

But like so many things the effect is not linear, in that now technology is putting power back in individuals. We can now take classes online, and be evaluated objectively via tests, making Universities less important. We no longer have a handful of news sources, but a spectrum that allows us to choose among vastly different interpretations of the same data. And we have digital currencies, which exploit cryptography innovations aligned with processing power to create ways of assigning credits more efficiently than fiat currency.

The essence of money is not that it is backed by something intrinsically valuable we can hold. Once  we severed its link to gold and silver, it still 'worked.' I would not have predicted that in 1900. Money works because people accept it, and the large network effects of everyone accepting it make it indispensable, because it avoids the 'double coincidence of wants.' Bitcoin was created by geeks who were incented to invest their technical skills into mining and developing the network, and as these highly productive people began to accumulate these assets, they appreciate its value. Since highly productive people appreciate these assets, they are valuable because they can be translated into purchasing the services of such people. Thus, initial coin offerings (ICOs) allow people to fund new businesses focused on blockchain technology because the same people creating these businesses are fine with getting paid in 'tokens', something that would be hard to convince for your average person.

Long term, I see much wealth going off the fiat grid into cryptocurrencies, because as we've seen throughout history, governments eventually run out of other people's money, leaving only expropriation via inflation or outright takings (see 'Fragile by Design'). Anticipating this, getting your money into something the government can't seize is important, and cryptocurrencies allow you to do this. If a government tries to prohibit bitcoin, those with large bitcoin accounts will simply move to someplace that accepts it, like Singapore, and a country filled with those who appreciate and have a lot of bitcoin will tend to prosper. So unless the world governments can enforce a worldwide compact with over a hundred players, bitcoin will succeed, and I'm sure most smart countries will ultimately allow general digital currency use reluctantly, to avoid such a brain drain.

While I love Bitcoin, Ethereum is better because it builds contracts into the same blockchain, which creates greater functionality. If you go to Reddit, you'll see more development in 'Go', a cutting edge software language, in Ethereum projects, and there are already more wikis on GitHub for Ethereum projects than Bitcoin projects, so I'm confident that Ethereum will surpass Bitcoin in market cap someday, especially once they move to proof-of-stake (sometime next year).

Since 2014, one has been able to put Bitcoin into IRAs (see here), though IRAs are so highly regulated, finding how to do this is non-trivial because. So I thought I would move some of my 401k into cyber currencies such as Ethereum (you can do BTC too, but I'll use ETH as the example).  Most 401ks and IRAs do not allow you to do this directly, and BitcoinIRA charges 10% to set up a Bitcoin IRA. I don't blame them for charging this much, as it's difficult, and as there's an 80% premium to NAV with the Bitcoin Investment Trust (GBTC), investors are clearly willing to pay extra to avoid the complexities involved in directly owning them (eg, try to explain this to your parents).

The problem is that no IRA custodian can translate USD into ETH the way they can move your USD into a mutual fund. You have set up an account at a cybercurrency exchange to do that, and most exchanges do not handle IRA transactions. The new regulated bitcoin exchanges have very small staffs relative to the number of customers, and so have automated most of their support function. Thus, if you have a question ('how can I buy BTC for my IRA on your exchange?'), you'll get an auto-bot answer using an algorithm that finds the best fit your keywords. These are irrelevant to unorthodox questions, and follow up questions just lead to more pointless autobot answers.

The humans, alas, are rarely better, basically doing the same thing with their meat-based neural nets by looking at their FAQs and copy and pasting answers from there. At Coinbase, if you follow up your question after not hearing anything for 3 days, they will assume you have changed your question, so it moves it to the back of their queue. Thus I had an issue where my question was never answered because every couple of days I would write, 'is anyone there?' which would put me back at the bottom of the queue, and my question was thus unanswered (and funds frozen) for 3 weeks.

It took me a while to find the companies that allow this directly. It's not straightforward, however, as Kingdom Trust clearly stumbled into this capability, and they gave me a bunch of contradictory information, all standard confusion.  I'm sure they and others will figure this all out eventually, but by the time it becomes easy to invest in digital currencies, the incentive will be a lot lower.  So, be patient, it will happen, but just about every step takes at least a day.

Here's how you set up a cybercurrency IRA:

1) Go to Kingdom Trust, an IRA custodian based in Kentucky.  Rollover your IRA/401k there, informing them you plan to hold ETH or BTC in your IRA.

2) Set up an account at Genesis (not Gemini). You will need a clear picture of your driver's license you can email them, and a digital photo of a recent utility bill (w/in 3 months).

3) Once approved at Genesis, you to open a BitGo account, as this exchange stores your initial wallet after the Genesis trade.

4) Ask Kingdom Trust for an "Investment Directive For Digital Currency" form.

5) Once you have this form, request a trade at Genesis, so that if you have $100K USD, ask them to buy as much as possible with that (it's called RFQ--request for quote--on the Genesis portal). You will get back a confirmation with the amount of USD paid for X units of ETH. You then 'accept' that on the Genesis site.

6) You then immediately fill out the Kingdom Trust "Investment Directive" form, which includes wire instructions to send your IRA money to Genesis's bank account at Silvergate Bank (see here), and your trade terms from Genesis, which includes how many ETHs were bought and for what USD price. You will need to sign the Kingdom Trust Investment Directive digitally, so add the PDF plug-in that allows digital signatures. Do this early in the morning, as even then it takes a day for them to instantiate the wire.

7) Kingdom Trust then gives you a wallet address from your BitGo account. You then go your Genesis portal and click on your earlier RFQ trade. Click on the blue box to the left of this, and under Buyer Actions put in the ETH address that Kingdom Trust gives you. Send your ETH to the BitGo wallet address Kingdom Trust gives you.

For Bitcoin, this is ultimately put into a multi-sig wallet. For ethereum, they do not have this capability yet but are working on it, so your money stays at an address at BitGo under Kingdom Trust's control.  After that, Genesis is basically out of the picture.

Fees: Genesis charges 1.5% for their service, which is implicit in the price paid relative to the market price. You have to pay Kingdom Trust $50 to open the account, $40 for the wire, and a $250 annual fee.

Pim van Vliet posted a link to my 1994 dissertation, noting it was an early documentation of the low-vol effect. One may wonder, why did this early evidence fall flat? Clearly, lots of things, but I'll try to highlight the keys.

Here's my lead paragraph, which makes clear I saw the low vol effect before most everyone:

This paper documents two new facts. First, over the past 30 years variance has been negatively correlated with expected return for NYSE&AMEX stocks and this relationship is not accounted for by several well-known prespecified factors (e.g., the price-to-book ratio or size). More volatile stocks have lower returns, other things equal. In fact, one of the prespecified factors, size, obscures this inverse relationship. Second, I document that open-end mutual funds have strong preferences for stocks that are liquid, well-known, and most interestingly, highly volatile stocks.

While I thought my dissertation found something new, true, and important, and so was unimpressed by the lack of interest in my findings. I got no 'fly-outs' to present my ideas, even though part of this dissertation led to an article published in the flagship Journal of Finance (the part on funds showing a bias towards small-cap stocks, see here). The main reason here is rather silly. I was an economics PhD, and I was interested in a finance job. The Northwestern financial department didn't find my work particularly noteworthy in part because it didn't have any good theoretical explanation, no equilibrium model consistent with utility maximizing agents. That was a constraint back then, though it isn't any longer, so that's just bad timing on my part.

You don't need an equilibrium story for empirical results anymore, you just have to say it's part of 'behavioral finance', as the popularity of Danny Kahneman and Freakonomics changed the standards. But asset pricing held out longer than most other fields, and so the seminal 'low vol' reference is  Ang, Hodrick, Xing, and Zhang (2006). The paper is mainly about trying to test a very rigorous extension to the standard model, looking at the volatility of volatility, but noted at the end the strange fact that volatility was, by itself, implied lower future returns. That finding was not the main point, just curious, but it highlights that early on, one couldn't just report something so contrary to the standard model--higher risk generates higher return--without a convincing, rigorous, explanation. Now, it's common for people just to throw in a constraint and ignore the inconsistencies with unconstrained investors, whose presence would put back the CAPM results (see here for a discussion on that).

Another issue was that I started writing my dissertation under the guidance of a game theorist, and he suggested I needed a real finance person as well. The first prof I pitched my idea to was not very receptive, and so I told him that she didn't like it. He was the Kellogg's (Northwestern's B-school) academic dean at that time, and so when he called her to ask about her reservations, she called me into her office, weeping, as she basically thought I was submarining her career by bad mouthing her. I had no idea it would be interpreted that way, but I was naive. Alas, her boyfriend at the time was the head of the finance department, so he was not going to be an advocate. Eventually, I got one finance prof on my committee, but he was a young guy without any pull among other departments.

Yet, once I did publish that JoF piece, I did have my low-vol finding make the first round at the JoF. However, my reviewer, a well-known guy, took umbrage at one of my statements in the second round and ended his review by saying not only would he not recommend my paper, but that he did not encourage me to work on this further (say, submitting to a lower tier journal). I would send papers out to other journals and got many dismissive rejections, such as one professor telling me I was trying to say the earth is flat, and one helpfully telling me they would save my submission fee by not even sending it to a reviewer. Of course, prior to 2006, if any of them were published, they would have been highly cited today.

I was heartened by the fact that most of these rejections were so strong: it wasn't found uninteresting, rather, inconceivable. This instigated me to start an actual fund based on the insight, a ' low vol' fund, and I got this started around 1996. I got a few interviews out in NYC with some big financial firms, but unfortunately, laid all my cards out on the table: invest in low vol, make an extra 2% with 3/4 the risk. With hindsight, this was a terrible pitch. To the extent one believes it's true, one can easily just take the idea and implement it. It seemed so simple, something seemed wrong. Everyone asked: but if it's true everyone would just invest in low vol stocks?

Later I applied this strategy within hedge funds, basically with low vol the main ingredient among a couple others, spread out worldwide, hedging with basic futures. It can generate a nice 1.0 Sharpe, and did for me historically. Alas, after I left one fund to do this on my own, my boss sued me for violating our confidentiality agreement, in that anything I had done there was 'his property,' so I spent much time documenting the fact that I had figured this all out before I went to his fund around 2003, and much of it public knowledge circa 2007-8. Eventually, I did get another chance to do that, and again it worked, but that multi-strat foundered for many reasons, but after that, I found most hedge funds were all looking for 2+ Sharpe strategies...

So, I'm doing something in crypto now because I think it's fascinating, and there's a lot of potential, as well as a lot of fraud.

But, in case your looking for other low vol info, here are some links:

• History of Low Vol Investing
• Assumptions needed for an equilibrium low-vol effect
• My cheap and readable Missing Risk Premium book

John Locke

It is important to understand that property rights are not grounded on logic, but no right is.

The liberal ideas that gave rise to the Enlightenment are generally thought (eg, Steven Pinker) to be a break from a religious thinking. Yet the key liberal idea, individual rights, especially property rights, are an axiom with little justification outside Christian theology. As Feynman noted with regards to scientific laws, the process of finding new ones is not deriving them via logic, but rather, guessing, and then looking at the consequences. History has shown that individual property rights are good. Friedrich Hayek noted that a universal morality is beyond human knowledge, in that prior to markets actually existing--say, while we were hunter-gatherers--one would never have predicted free markets are better than socialism. Individual property rights are one of those moral principles that were discovered outside of pure reason.

Historically the King supposedly represented the people, and what he wants necessarily is what his people need. It's the original conflation of the state and society. The idea that a regular individual can seek his own self-interest and simultaneously be optimally working for society seems absurd, in that clearly there are many evil people who have no interest in bettering society. The idea that the state should ultimately own everything is an ancient idea, and private property highly non-intuitive idea, why it took so long to develop.

Roman law recognized private property belonging to individuals, but with a large caveat. For example, Cicero (106-43 BCE) wrote that "I do not mean to find fault with the accumulation of property, provided it hurts nobody, but unjust acquisition of it is always to be avoided." With this little exception many rulers could capriciously expropriate, in the same way there is a right to free speech in Cuba as long as it is "in keeping with the objectives of socialist society." Roman emperors viewed private associations like guilds as having the right to property, but these had to be founded with state authority and were closely regulated.

St. Augustine (354-430 CE) noted that reason is insufficient to motivate a truly Good Will. The will has reasons outside of reason, and is essential for being 'good,' so the individual is primary, his relation to anyone else secondary.  In 1140 Gratian wrote the Decretum, a collection of Canon law as a legal textbook. It argued that natural law of men created in the image of God is the Golden Rule. "Natural law is what is contained in the law and the Gospel. By it, each person is commanded to do to others what he wants done to himself and is prohibited from inflicting on others what he does not want done to himself." Gratian's identification of natural law with the Golden Rule (Matthew 7:12) departs from the definition in Justinian's civil code (529 CE), which defines that natural law is what “nature teaches all animals.”

Franciscan friar Duns Scotus (1266-1308) argued that morality needs freedom because without freedom, a person cannot do anything praiseworthy; without freedom actions do not represent the will, so are morally neutral. Fellow friar William of Ockham’s (1285-1347) writings on natural law are significant for the ideas of both individual rights and consent to government. Defending his Franciscan order against papal criticisms of their teachings on spiritual poverty, he distinguished among the various meanings of the Latin word jus (law, right) and dominium (rule, property) to defend an individual right to property. Ockham's emphasis on faith and freedom countered Thomas Aquinas's rationalist account of natural law. Rights, liberty, were paramount, and these put limits on the power of rulers.

These ideas define the central concepts of liberal constitutional theory: individual rights, freedom, equality, limited government, popular sovereignty, consent to law and government, and the right of the people to resist tyrannical rulers. Hugo Grotius (1583-1645) was a Dutch jurist and argued that nature was not an entity in itself, but God's creation. Samuel Pufendorf (1632-1694) relied on Grotius to argue that the state is nothing more than the sum of the individual wills that are associated within it, and hence the state needs to submit to a discipline essential for human safety. In this view, the state is a subordinate claimant on the individual, behind the individual's prerogative, who then has the free will to sin or not.

Finally, John Locke (1632-1704) also thought natural law was the same as biblical revelation, both originated from God. Thus, the Euthyphro dilemma "is what is morally good commanded by God because it is morally good, or is it morally good because it is commanded by God?" is no dilemma because God wrote his moral code on our heart, and his commands are natural law as well if we care to discover them via trial and error. The preeminence of property for Locke is clear when he writes the 'great and chief end of a commonwealth, and putting themselves under government, is the preservation of their property.'

When the US Framers of the Constitution refer to individual property rights they almost always spoke in overtly religious terms. For example, John Adams wrote "If  'Thou shalt not covet,' and 'Thou shalt not steal,' were not commandments of heaven, they must be made inviolable precepts in every society before it can be civilized or made free." This makes sense because at some level a right like cannot be proven, and so like religion takes a bit of faith.  Rights are like duties, in that they constrain other objectives irrespective of their utilitarian benefits: it is presumed they serve some transcendent or long-term benefit, one that cannot be proven but is rather inferred based on an ideology about the way the universe works.

Property rights were so important to the Framers that all men at the Constitutional Convention placed their protection above freedom of religion, press, and speech (see Forrest McDonald). In short, the Framers placed property rights higher than all those things we now most commonly associated with 'rights.' Traditional property is a social institution, and society maintains the institution only so long as people think private property rights serve the social interest better than alternatives.

A right is something that laws should respect irrespective of its utilitarian justification. Time and again people have argued that certain property should be seized from individuals because it can more effectively be used elsewhere, and for specific cases, this will be true (eg, see Posner and Weyl's Radical Markets). Yet this leads to a slippery slope, in that any agency or mechanism with the power to make this assessment is liable to expand its powers, and the result will be a crypto-plutocracy portraying itself as representatives of the people (see Venezuela), or crony capitalism as in highly regulated states like Italy and India.

Property rights originated from Christian theology, and have proven themselves empirically over the past couple hundred years. As Feynman noted, good laws start with a guess, and then we see if it works by experiment or experience.