Stand Up for Liberty! Table of Contents
Stand Up for Liberty!
Chapter Thirteen
Creating Informed Investors
An ignorant investor stands to be fleeced. An informed investor is a better investor. These principles are just as sound for investors in the marketplace of ideas as for investors in the stock market. How are ignorant Libertarian donors to be transformed into informed Libertarian investors?
The key answers are information and analysis. To transform Libertarians from donors into investors, the right questions must be asked. Information must then be collected, properly analyzed, and in the end given to the people who need the information, in a form that they interpret correctly.
This chapter is tentative in its proposals. To the best of my knowledge, no one has ever implemented a marketplace of ideas in the sense that I am proposing one. I do not claim that I have solved the questions that I will pose here.
I am discussing a political organization. The Republican and Democratic Parties face the same funding challenges that we face. Can we copy the structures set up by the Democratic and Republican Parties to solve these challenges?
In my opinion, the answer is negative. Our political competitors also raise funds for multiple projects, but Republican and Democratic Party investors don't have marketplace choices about how their money is spent. The available choices are mostly special-interest groups treating taxes, abortion, agricultural subsidies, etc. Each interest group is firmly attached to the Republican or Democratic Party, the special interest existing primarily as an emotional tag for squeezing extra money from donors' heartstrings. Republican and Democratic Party donors do not receive objective information about the relative performance of different PACs, let alone detailed information on how their money was spent.
I also use analogies with the market in stock, bonds, and derivatives. A major challenge is that the financial marketplace promises financial returns on a financial investment: investment and return can be measured on the same yardstick. In contrast, the marketplace of libertarian ideas asks financial investment but offers non-financial returns: investment and return cannot be measured on the same yardstick.
One of the few markets that invests in ideas without a financial feedback mechanism is the peer-reviewed support market for scientific research. In the peer-reviewed scientific market, an investigator tries to persuade referees that he has good scientific ideas. The referees can examine the past record of the investigator. The scientific research market resembles the marketplace of ideas in that the return on investment is not financial, so a profit/loss analysis does not make sense. The scientific market differs from the marketplace of libertarian ideas in that a scientific investigator is not trying to persuade his referees to invest their own money. Libertarians thus are not the only people who face a non-financial marketplace. The other non- financial marketplace hasn't found a perfect method to distribute money. We will not necessarily do better in the short term.
In looking at projects and campaigns, Libertarians legitimately ask several questions:
What are these people proposing to do? What are their objectives, and how do they plan to get there?
What record do these people have? What have they promised in the past? What did they do in the past?
How was my money spent? Did it go to the announced objectives, or did something get in the way? What was the overhead?
And, most important: How do I find answers to my questions?
In many cases, the record of past promises comes from fund-raising letters, talks at state conventions, and articles in newsletters. A first step toward evaluating these questions is a repository, or a set of repositories, for all these materials. Of course, persons who wish their fundraising letters to avoid public scrutiny can try invoking copyright protections on their writings. That's a property rights issue, involving complex questions of law. However, if candidate A refuses repository B permission to post his scanned fund-raising letters on the web, nothing prevents repository B from announcing the fact, and letting readers come to their own conclusions. (A depository collection of written materials in a library, available to people who physically visit the site, is nearly impossible for candidate A to control.)
Another step to answering these questions is to let third parties evaluate the record, so Libertarians learn who promised what on which date, and how promises evolved in time. The third parties need copies of the original documents to protect themselves but they do not need to publish the documents. With third- party support, individual Libertarians can learn how promises are kept or not kept.
In evaluating organizations of other sorts, such as charitable and educational funds and trusts, there are standards of transparency. The organization's records reveal how money was spent: who received money and for what purpose. Interpreting such records may be assisted by expert knowledge. A mailing may have cost $1.38 per letter, but unless you know what was mailed and have some knowledge of printing and mailing costs it may not be clear whether the charge is outrageous or shows great skill at bargaining down prices.
Many groups must file financial reports with the Federal Election Commission. For these groups, detailed information is available. Evaluating that information, and presenting the evaluation in a coherent way that laymen can understand, takes time and effort. Once again, third party evaluation and reporting can guide individual Libertarian investors to sound investment decisions. Such evaluation requires a third party to sit down with the documentation, see what is there, and present an interpretation. The party being evaluated may wish to present an alternative interpretation.
Transparency is the notion that if one looks at a record of performance, it should be reasonably clear what it is saying. Fiscal records are particularly subject to being rendered opaque. "Petitioning expenses" and "publishing expenses" cover a variety of costs, not all equally valid. In order to evaluate the cost, a reader needs to how many signatures were collected and under what constraints, or what was printed and in how many copies.
A group interested in demonstrating the legitimacy and frugality of their expenses can be much more transparent than a group interested in enhancing the income of its consultants and the perks associated with high office. When statements become more generally available, it will become easier for their contents to be evaluated and compared. Records are not always as transparent as they appear. For example, the record may show that X is receiving money, apparently for a legitimate purpose, but may not make clear that X is Y's significant other, and that conflict of interest or nepotism rules or lack thereof might be a matter of interest for potential investors.
The Advisory Groups discussed in the previous Chapter will likely play a significant role in creating market transparency. On one hand, we respect private property rights. A group advancing the libertarian movement may not want its finances to be reported in detail. With well-known legal exceptions such as campaign finance laws, those finances are intellectual property. We respect within legal limits the right of a group to operate in privacy. On the other hand, we also respect freedom of speech. Third parties are entitled to report on which groups are open and transparent in their conduct, and which groups cloak their operations under the guise of intellectual property.
Financial groups have resolved some of these challenges by means of Uniform Accounting Standards. These Standards are systematic rules, specifying how certain types of expense, debt, asset, and investment are to be reported. The same standards are applied uniformly to everyone in an industry. With Uniform Accounting Standards, someone who understands the standards can compare balance sheets of different companies, and determine which firms are more profitable, and which firms are less profitable.
Uniform Accounting Standards can also be brought to the marketplace of ideas. If various groups raise money to support candidates, they can agree to report their expenses in a uniform way. A third party can monitor and report on voluntary compliance with Uniform Accounting Standards. One group may have higher assessment expenses that another, but if the more expensive group is also better at causing candidates to win, they may be the right place to invest.
What are these uniform standards? That's a complex technical issue to which I do not yet have a complete answer. Besides, I need something for my next book, Make Liberty Happen! I'm happy to have advanced to the stage of proposing that when such standards are created, they will be greatly advantageous to the marketplace of ideas.
In the end, the market will always prevail. If enough investors insist on open reporting and efficient spending, we will get open reporting and efficient spending. If enough investors respond to spin, glitz, and hype, with no concern as to whether anything constructive was actually done with their money, fundraisers will be able to waste money with no concern that market forces will weigh against them. If investors are interested in the past promises and performance of an operation, operations with good records will presumably benefit. If investors are prepared to swallow any excuse however implausible as to why promises were not kept, operations will not concern themselves with keeping their promises to their political supporters.
If you read the last paragraph carefully, you will see that it is all up to you. Will the market support sound investment, or whether the market serve up sheep ready to be sheared?