Move over eagle, our new national symbol is the Bear

Even brash libertarian capitalists can be made to admit that government plays certain necessary roles in order to underpin a free market society. The most irrefutable among them is preserving private property rights. This is commonly elaborated to comprise two spheres:

• Providing physical security for the country from external threats (= a defensive-only military)
• Protecting one's property rights from the rest of the populace (= an internal system of property laws and law enforcement)

The first is pretty self-contained. Namely, don't let the wily Canadians come down here and change or subvert that system of laws and enforcement that underpins the second sphere. The second is what really makes the world go 'round. On face, it's straightforward: it's not okay to steal my stuff; I need it to get rich off of ... but I can't, by myself, keep the whole world from knocking down my door. I need the whole society to collectively and reliably enforce.

With these in place, an idealistic capitalist would say, government has satisfied it's purpose and should go no further. Motivated, self-interested individuals will act to maximize their happiness, wealth, or whatever measure of "utility" more effectively than any external body, however altruistic it may be. This is guaranteed to achieve the highest possible "gross national utility" (GNU) and thus the highest average utility per capita.

Unfortunately, sometimes what I do with my property infringes on yours. Say I start dealing drugs out of my house. I get rich. The rest of my yuppie neighbors get furious that the neighborhood is going to shit, what with all the druggies and crime moving in. Meanwhile, I've enabled a bunch of potentially productive people to get high and become lumps of useless flesh. Say my meth lab keeps catching fire and burning down the neighbors' houses. Do these things still result in a maximized GNU? Nope, only mine. My neighbors are suffering from the "externalities" of my actions.

Examples of externalities are endless:

• A factory pollutes a river and makes the downstream residents sick, increasing their healthcare costs.
• An bank makes risky investments and goes belly-up, zapping the savings of its depositors
• A management team pays themselves royally while driving the business into the ground, rendering worthless shareholders' stock, as well as the incomes, healthcare, and retirement funds of employees.
• A small group corners the market on an essential good and then sets a ridiculous price, effectively transferring wealth from consumers to themselves.
• A bar opens up in an apartment building and makes so much noise nobody can sleep ... or sell their apartments.
• A con man sells knock-off products that don't perform as promised. Buyers have no recourse other than to go elsewhere; fine with the con man - he makes a whole career of duping first-time buyers.
• A drug company sells medicines which perform as advertized, but 10 years later cause cancer
• An investment bank borrows heavily and throws the funds into risky investments. The investments go south, the bank can't pay its loans, and the whole market panics, making it impossible for other, sound banks to continue their activities

Whether the above are textbook externalities, bad luck, or criminal is a matter of perception, but these examples make clear that my property protection needs protection from the externalities of your property protection ... which has to be codified in our laws. Suddenly we're back to the drawing board to better define our original point two above. Enter government expansion, as they write tomes about what is and isn't allowed.

Could it be simpler? Could we simply say that a property owner is flatly responsible for any externality from his property and actions? Freaky, I know ... but what if we had universal externality insurance? Enough questions. The benefit of this is that it gets government back out of the economy, since they consistently screw it up. This, of course, creates a whole new set of complexities to be worked out, disagreements to be arbitrated, and missing precedent. If done correctly, though, it would have several nice side effects:

• reduction in government
• reduction in litigiousness
• restoration of a personal responsibility

And that last one is perhaps what I've been driving at from the beginning. One cannot be omniscient about the future consequences of one's every action. We'd be in permanent "analysis paralysis" afraid to do anything. One need not be. In this context, people can simply be responsible and intelligent about choices ... and insure themselves against those unanticipated consequences.

Now, what does this have to do with Nationalizing Bear? It is this: ensuring Bear is a viable concern on any given day is not my responsibility or interest. Nor is it yours. Nor is it our collective responsibility. And in no conceivable way is it the government's. Replace "Bear" with "all of Wall Street" and my answer is the same ...

... Trouble with that is the externalities. I've been glibly relying on the positive externalities of Wall Street's efficiency and ingenuity for years. We all have. They've figured out ways to fund all kinds of cool businesses, reduce transaction costs so small fish like me can buy into those cool businesses and partake in the culture of capital. The idea that Wall Street might implode and stop providing those benefits (which neither you nor I pay for) is supposed to cause panic and hysteria. "Can't have that ... gotta intervene" some argue. Were each of those I-banks insured against caused externalities, we wouldn't be so scared. Were I also insured against experiencing externalities, I'd be all warm n fuzzy inside. We just might end up being a more sane and rational society.

I anticipate this solution will get criticized as a mere transfer of liability to big corporations who will, in turn, just leave the henhouse to the foxes. My response is that insurance companies are designed to transfer liability. They are the experts at finding investors willing to take the risk in return for either a steady stream of payments or the chance at a big payout. They mitigate, they distribute, they hedge. These are the wonders of modern finance. The genius of Wall Street ... not Capitol Hill. Whereas Wall Street responds to challenges like this using an analytical, profit-seeking, quantitative, risk-minimizing approach, politicians have a different tack. Bail out. Fear-monger. Stump speech. Borrow and tax. Wrong-footed at each step, the government's response increases risk (via increased leverage) and has no promise of maximizing profit.

Nationalizing is bad when Chavez and Castro did it. Bad when Musolini and Mao did it. Why, then, should it be any different for us?