WEBVTT NOTE The Anarchist Society vs. the Military State: The Insignificance of the Free Rider 1 00:00:00.000 --> 00:00:07.400 My paper is The Anarchist Society vs. The Military State, The Insignificance of the Free Rider. 2 00:00:07.400 --> 00:00:15.000 I'll be talking about a ceteris paribus situation, where there's an anarchist area and a government-controlled state, 3 00:00:15.000 --> 00:00:23.500 and the state is invading the anarchist area, and how would an insurance-based private defense defend in such a situation, 4 00:00:23.500 --> 00:00:53.500 and especially looking into how it would be funded through capital markets, analyzing the insurance industry as it is today and looking at the idea that there would be free riders in the defense, that some people would gain, would pay for the defense while other people would free ride and this would create a problem that the defense would be too weak and I'm going to try to prove to you all that the free riders 5 00:00:53.500 --> 00:01:06.500 is not just not a problem in itself, but even if there was a free ride or the capital markets are strong enough where insurance paid by a few could cover the costs. 6 00:01:06.500 --> 00:01:14.500 So in order to begin discussing what a private war would be like, we have to consider that the objectives are going to be much different than a regular war. 7 00:01:14.500 --> 00:01:25.500 The state wants to conquer, but on the other hand, a private defense company representing the claims of an insurance company has no incentive to conquer the state, for example. 8 00:01:25.500 --> 00:01:30.500 The only incentive it might have to conquer the state is to just disturb it politically. 9 00:01:30.500 --> 00:01:33.500 Its job is to dissuade the war. 10 00:01:33.500 --> 00:01:47.500 The private defense company would fight almost with similar objectives to guerrilla warfare where you're trying to disrupt the state politically to make the war inviolable to them. 11 00:01:47.500 --> 00:02:02.500 You have to threaten the power of whoever is controlling the state or the other option is to have such a large army that you can actually beat the state from ever achieving its military objectives 12 00:02:02.500 --> 00:02:32.500 One of the differences in the war, though, is that as the private company has different objectives from territorial claims, we have to also remember that the state is going to change its objectives, because the state, when two states fight, one state will attack the other one, and you're going to take the infrastructure, you're going to take government buildings, you know, whether it's the military or the military. 13 00:02:32.500 --> 00:03:02.500 The problem is if you're attacking an anarchist area, none of these things exist anymore, and you're fighting a company, so your objectives have to change to not just conquering the area, but bankrupting the company, which would change how you would fight the war entirely, and one problem that this could create would be that the insurance company could actually cause more damage to the company, 14 00:03:02.500 --> 00:03:32.500 Let's talk about the damage to the people that insurers, which I'll explore, because, for example, imagine a situation that the private defense is defending a block of insured property, and you have government troops that are fighting with them, and if they lose this block in a regular state versus state war, they might just take the block and go to the next block and fight, but if your block is entirely insured, you have a problem that if the private defense loses, they're going to take the block, and then they're going to set the entire block on fire, 15 00:03:32.500 --> 00:03:41.780 to further attempt to bankrupt the company and it almost creates an incentive for the state to do as much damage as possible. 16 00:03:41.780 --> 00:03:55.900 So the private insurance company has to decide if a war is even viable because that's its obvious weakness that can be driven to the point of bankruptcy. 17 00:03:55.900 --> 00:04:07.500 One example of the World Trade Center, when it was destroyed, it was $80 billion worth of damage and $40 billion was insured. 18 00:04:07.500 --> 00:04:15.800 So the question is, if somebody were to attack, like an army were to attack New York, which was supposedly heavily insured, 19 00:04:15.800 --> 00:04:24.500 how many skyscrapers would you have to destroy before the company gets bankrupt? 20 00:04:24.500 --> 00:04:38.340 So, the idea is that they have to always keep up a big enough defense to always dissuade the state from ever attacking, that it's its best option, because it doesn't even want to engage in conflict. 21 00:04:38.340 --> 00:04:43.740 Even in the process of defending, it's going to cause damage and destruction. 22 00:04:43.740 --> 00:04:48.020 You can't have a war in your territory without, you know, something being destroyed. 23 00:04:48.020 --> 00:04:55.060 Plus the Costs of just operating the Army. 24 00:04:55.060 --> 00:05:02.780 One common argument against the private defense, that since it is a profit sort of entity, 25 00:05:02.780 --> 00:05:14.220 that it would not defend when the costs of the state taking over were less than what it would cost to defend the area. 26 00:05:14.220 --> 00:05:29.900 But looking at it from a profit perspective, we can't assume this because let's say you have an anarchist area and you have an insurance company there and there's this state that's attacking you and they have relatively low taxes, maybe like 10 percent. 27 00:05:29.900 --> 00:05:36.460 So you would think reasonably that you could make a calculation that, you know, a defense will cost us 30 billion dollars. 28 00:05:36.460 --> 00:05:43.300 These taxes will only cost us 20 million over 10 years that it's better not to fight. 29 00:05:43.300 --> 00:05:49.060 But the problem is that the private defense company is dealing with a non-market force, 30 00:05:49.060 --> 00:05:52.700 that it's dealing with a government that can assert whatever it wants, 31 00:05:52.700 --> 00:05:58.980 in the similar way that when the income tax was started in the U.S. in 1914, 32 00:05:58.980 --> 00:06:04.940 the highest bracket paid 7% and four years later paid 77%. 33 00:06:04.940 --> 00:06:12.420 So those calculations are impossible because the company could calculate it's going to cost us $30 million to defend, 34 00:06:12.420 --> 00:06:20.300 The taxes are going to be 20 million over 10 years, but then they could be conquered and the taxes are changed to, you know, 35 00:06:20.300 --> 00:06:28.100 a hundred billion worth to them over, you know, however many years or all kinds of restrictions can be taken. 36 00:06:28.100 --> 00:06:33.140 And even like the U.S. has price controls in Iraq and those sorts of things. 37 00:06:33.140 --> 00:06:40.100 So you never know what kind of actions an invading government is going to do, even if you let them conquer peacefully. 38 00:06:40.100 --> 00:06:43.620 What kind of taxes and how that's going to affect the general economy. 39 00:06:43.620 --> 00:06:50.100 And you have to assume immediately that obviously it's the government that's attacking is not friendly. 40 00:06:50.100 --> 00:06:58.980 So, you know, your chances of being treated fairly are even far less. 41 00:06:58.980 --> 00:07:07.140 Another reason that the company may fight beyond its profit motive is just for the reputation of the company. 42 00:07:07.140 --> 00:07:13.460 Suppose a small area was being defended, well attacked, where there weren't many insurers, 43 00:07:13.460 --> 00:07:18.900 it's going to look very unfavorably to the company if that company decides not to defend that area, 44 00:07:18.900 --> 00:07:26.580 that if they don't act on the small area where there's few insurers, insured people in other area 45 00:07:26.580 --> 00:07:32.820 may switch to different insurance companies because they've seen that in a time of trouble, 46 00:07:32.820 --> 00:07:36.460 this insurance company is not going to be there, so we better switch to somebody else. 47 00:07:36.460 --> 00:07:47.860 So even beyond profit motive, there's a question of there's a possibility the insurance company will still fight. 48 00:07:47.860 --> 00:07:56.220 And as far as fighting back, as I was saying, the insurance company, 49 00:07:56.220 --> 00:08:02.220 the insurance company will try to politically, through its private defense, politically dissuade, 50 00:08:02.220 --> 00:08:29.220 Insurance would be ready to counterattack and kill, whether with long-range precision weapons or assassination commandos, state agents from the top of government, hierarchy of king, president or prime minister, on downward, while seeking to avoid or minimize collateral damage or property of innocent civilians, non-state agents. 51 00:08:29.220 --> 00:08:41.220 They would thereby encourage internal resistance against the aggressor, promote its de-legitimization and possibly incite liberation and transformation of the state territory within a country. 52 00:08:41.220 --> 00:08:57.220 And this sort of destabilization of the political and government forces, an example I thought was most like that in modern war would be maybe the Kosovo conflict where we just did precision, 53 00:08:57.220 --> 00:09:07.220 Well, we did precision strikes of infrastructure, of government buildings, of things controlled by government officials. 54 00:09:07.220 --> 00:09:14.220 There was a lot of impact on, there was targets which were definitely questionably military targets attacking lots of the economy, 55 00:09:14.220 --> 00:09:19.220 but we never actually put in ground troops into Kosovo. 56 00:09:19.220 --> 00:09:27.220 In 90 days, the US was able to politically dissuade the actions of Serbia 57 00:09:27.220 --> 00:09:31.220 and they were also able to change the political climate there 58 00:09:31.220 --> 00:09:36.220 where once it came around to election time, I think a year later, he was ousted 59 00:09:36.220 --> 00:09:40.220 and then later on his own people turned him into the Hague. 60 00:09:40.220 --> 00:09:46.220 So a similar thing could be done where there would be a strategy of 61 00:09:46.220 --> 00:10:02.380 of just attacking the entire legitimacy of government, you know, setting the blame form on anything and pretty much just even attacking them as the main targets. 62 00:10:02.380 --> 00:10:14.980 And as now in the absence of the free rider part, the thing is that other riders didn't look at is that we have to remember that this is an insurance based private defense. 63 00:10:14.980 --> 00:10:23.700 So that doesn't mean that you're paying for your private defense in the same way that you pay for a security guard at a building. 64 00:10:23.700 --> 00:10:29.500 You're paying the insurance company, which is in turn paying the private defense. 65 00:10:29.500 --> 00:10:38.420 So that means that the person who doesn't have insurance doesn't free ride on the benefits of the insurance. 66 00:10:38.420 --> 00:10:47.420 He may free ride on the benefits of the defense, but he doesn't free ride on the actual insurance itself. 67 00:10:47.420 --> 00:10:56.420 So, for example, I thought of a situation where, let's say, we're going to look at how the person who doesn't pay for insurance 68 00:10:56.420 --> 00:10:59.420 and the one who pays are affected by the war. 69 00:10:59.420 --> 00:11:06.420 So, if the state wins, the guy who doesn't pay, he loses all of his freedom, just like anybody else. 70 00:11:06.420 --> 00:11:12.220 And the second part is that he suffers all damages during the war. 71 00:11:12.220 --> 00:11:19.340 So if there was a war going on and your house is insured and it's damaged during the combat, 72 00:11:19.340 --> 00:11:22.580 if you are insured, you get your damages paid for. 73 00:11:22.580 --> 00:11:26.740 But if you aren't insured, the conflict is still going to be going on around your house. 74 00:11:26.740 --> 00:11:28.900 And if your house is damaged, that's it. 75 00:11:28.900 --> 00:11:33.780 You know, you're not insured, there was a war and nobody's paying for your stuff. 76 00:11:33.780 --> 00:11:41.380 So if the state wins, the guy who pays, he could be a target of more damage because he is insured. 77 00:11:41.380 --> 00:11:46.860 But at the same time, even though he's a target of more damage, he's compensated for all of his damage. 78 00:11:46.860 --> 00:11:54.460 So it's a very different thing that the guy who doesn't pay doesn't free ride on the damages of war at all. 79 00:11:54.460 --> 00:12:03.460 Where the guy who does pay for insurance-based defense, he gets the defense and he gets paid for any damages that he incurs during the war. 80 00:12:03.460 --> 00:12:07.380 where the guy who doesn't pay may get some defense 81 00:12:07.380 --> 00:12:10.220 as far as proximity that if one house 82 00:12:10.220 --> 00:12:13.960 in a neighborhood is insured or a few are, 83 00:12:13.960 --> 00:12:16.340 and there's kind of like an uninsured one in between, 84 00:12:16.340 --> 00:12:18.760 he may free ride on that aspect, 85 00:12:18.760 --> 00:12:20.260 but if any damage happens to him, 86 00:12:20.260 --> 00:12:22.500 he doesn't free ride on that. 87 00:12:22.500 --> 00:12:25.480 And same with if the anarchists win, 88 00:12:26.600 --> 00:12:28.260 if you paid for insurance, 89 00:12:28.260 --> 00:12:31.000 everything you have that was damaged is insured, 90 00:12:31.000 --> 00:12:39.280 But even if you don't pay all the damages you suffered during the war, you have to take for yourself. 91 00:12:39.280 --> 00:12:51.360 Another advantage of being insured where the free rider doesn't gain is that in the situation that the state does win over the anarchists, 92 00:12:51.360 --> 00:12:57.200 is that the insurance company can pay settlements to its insured clients. 93 00:12:57.200 --> 00:13:06.540 For example, now when we see a war ending, we see refugees crossing borders, coming to refugee camps, facing extreme scarcity. 94 00:13:06.540 --> 00:13:12.680 Well, that's what you would see with the people who weren't insured, but the people who were insured would have just gotten settlements 95 00:13:12.680 --> 00:13:16.520 from their insurance company for damages from the war and whatnot. 96 00:13:16.520 --> 00:13:26.400 So it would be a very different picture of the picture of the free rider leaving in a refugee camp compared to a insured person 97 00:13:26.400 --> 00:13:29.300 The 98 00:13:29.300 --> 00:13:39.040 house is gone or his country taken over but he would at least have a settlement some money to start off somewhere new. 99 00:13:39.040 --> 00:13:47.560 So I'm going to talk about some of the strengths and weaknesses of the private defense that are commonly talked about. 100 00:13:47.560 --> 00:14:05.400 One issue that I wanted to address is lots of libertarian writers have this idea that the private defense will be automatically better because private companies are far more efficient and therefore they will beat any sort of state army. 101 00:14:05.400 --> 00:14:18.920 Well, I think this is just not looking into it enough because nothing is stopping the state from hiring its own private army to fight the private army of the anarchists. 102 00:14:18.920 --> 00:14:27.920 So it's kind of like a way of completely canceling out the private efficiency part where they'll put it on equal ground. 103 00:14:27.920 --> 00:14:36.480 And the other kind of private advantage that's talked about is, well, naturally, the anarchist area would have greater economic freedom. 104 00:14:36.480 --> 00:14:45.840 So therefore, they'll have more resources to fight a war and such and such an argument. 105 00:14:45.840 --> 00:14:51.920 The problem with this is that we don't know exactly how the market is going to allocate its resources. 106 00:14:51.920 --> 00:15:01.520 You know, Ceteris Paribus could be that the anarchist area is utilizing its resources ten times more than the other area, 107 00:15:01.520 --> 00:15:08.220 but we don't know if this is going towards private defense, if it's going towards people buying new cars, 108 00:15:08.220 --> 00:15:14.720 where the state can tax and allocate resources in non-market desirable ways, 109 00:15:14.720 --> 00:15:20.520 and that even with the anarchist area adjusting, it has to start adjusting to the spending of the state, 110 00:15:20.520 --> 00:15:50.520 One advantage over a freer market and national defense would be that this would be a big advantage for the anarchists is that which weapons are produced would entirely change, because people always generally want defense, and that's a demand in the market, there's very little demand of somebody who wants conquest, for example, and that's a big advantage for the anarchists. 111 00:16:20.520 --> 00:16:26.600 The market for defensive weapons is extremely behind everything else. 112 00:16:26.600 --> 00:16:35.200 Like surface-to-air missiles are just almost like 30 years behind airplanes these days. 113 00:16:35.200 --> 00:16:37.560 I think the Iraq war proved that pretty well. 114 00:16:37.560 --> 00:16:42.960 Like, instead of the Kosovo war, you know, you don't have like a chance of shooting down in F-15. 115 00:16:42.960 --> 00:16:50.240 And the way that the governments were allocating resources is that it's a good example in Iraq. 116 00:16:50.240 --> 00:16:58.720 They were allocating towards an offensive sort of format where they had Scud missiles and chemical weapons, 117 00:16:58.720 --> 00:17:06.160 but their defensive surface-to-air missiles were Russian-bought and pretty much antiquated. 118 00:17:06.160 --> 00:17:12.560 And when it came to an actual defense, it failed, where in a market it would be completely different. 119 00:17:12.560 --> 00:17:15.720 There would be almost no demand for a Scud missile. 120 00:17:15.720 --> 00:17:23.160 There would be no demand almost for a nuclear missile unless you were threatened in some situation by somebody else possessing one. 121 00:17:23.160 --> 00:17:32.040 And there would be a higher demand in things like surface-to-air missiles and other protective technologies. 122 00:17:32.040 --> 00:17:42.680 So after a while, you would have just the opposite where your surface-to-air missiles would be extremely advanced and your airplanes would be less advanced. 123 00:17:42.680 --> 00:17:50.180 So it would be almost like the opposite of, imagine, the Iraq situation where we went bombing and we didn't lose one plane. 124 00:17:50.180 --> 00:17:58.580 It would be thinking the market would eventually shift to where almost every plane gets blown up and it's the surface-to-air missiles that stay 125 00:17:58.580 --> 00:18:04.520 because there's completely different incentives for defense. 126 00:18:04.520 --> 00:18:12.480 One argument made by people as a strength, too, is that guerrilla warfare would be a form of defense. 127 00:18:12.480 --> 00:18:18.720 I also kind of wanted to throw out this idea because guerrilla warfare is extremely problematic 128 00:18:18.720 --> 00:18:23.720 is that it's almost never a defense, it's always resistance. 129 00:18:23.720 --> 00:18:28.080 To even engage in guerrilla warfare, you have to be taken over and then you fight the guerrilla 130 00:18:28.080 --> 00:18:29.080 warfare. 131 00:18:29.080 --> 00:18:36.480 There's very few instances where there's a front coming in, for example, almost any war 132 00:18:36.480 --> 00:18:40.880 like World War II with the French partisans, they didn't stop the Germans at the border, 133 00:18:40.880 --> 00:18:58.200 They were conquered and then the partisans got up, you know, started attacking and they were trying to use the same tactic of dissuading politically the invading troops. 134 00:18:58.200 --> 00:19:07.760 Because that's one issue I wanted to look at too, that if there is actually a free rider issue anywhere, it's with partisan resistance and guerrilla fighters. 135 00:19:07.760 --> 00:19:14.560 They're very effective, but if you look at the actual numbers of guerrilla fighters, they're extremely small. 136 00:19:14.560 --> 00:19:22.400 I found one paper on the Chechen fighters that supposedly there's only 1,800 of them. 137 00:19:22.400 --> 00:19:31.160 In the French resistance war, I think there's about 100,000 against the Nazis. 138 00:19:31.160 --> 00:19:43.280 They're very effective groups that are just always trying to dissuade the political power, 139 00:19:43.280 --> 00:19:47.880 but they have no power to militarily remove the troops out. 140 00:19:47.880 --> 00:19:50.400 It's the same thing as in Iraq. 141 00:19:50.400 --> 00:19:53.200 The insurgents are just affecting us politically, 142 00:19:53.200 --> 00:19:59.880 but the insurgents are doing nothing to actually remove US troops from there. 143 00:19:59.880 --> 00:20:03.680 And they kill a guy here and there. 144 00:20:03.680 --> 00:20:09.800 And it's extremely problematic when you run into regimes that are not going to leave. 145 00:20:09.800 --> 00:20:14.540 One example would be Ireland, where there's a 200-year guerrilla warfare going on there 146 00:20:14.540 --> 00:20:18.120 more or less, and the regime's just not going to leave. 147 00:20:18.120 --> 00:20:21.120 And for a private defense, that's not even an option. 148 00:20:21.120 --> 00:20:25.440 You can't serve customers and tell them, well, we're going to wage a guerrilla warfare. 149 00:20:25.440 --> 00:20:55.440 But the main thing I wanted to look at is the capital for our private defense, well, as far as there would be insurance companies today, and the surplus equity levels of the insurance company today are at $347 billion, and insurance companies can take about 20% of that without having solvency problems, so the capital for private defense is $347 billion, 150 00:20:55.440 --> 00:21:00.040 So at any point in time, well, that would be $69 billion. 151 00:21:00.040 --> 00:21:06.440 At any point in time, they can pay out $69 billion easily. 152 00:21:06.440 --> 00:21:08.880 Beyond that, they can tap into the other surpluses, 153 00:21:08.880 --> 00:21:14.160 but then insurance companies are going to have solvency problems. 154 00:21:14.160 --> 00:21:23.360 But the good part, though, still is that even when they start tapping into the additional surplus, 155 00:21:23.360 --> 00:21:53.360 In the US, there's a $347 billion surplus before you even get into the reinsurance market and if you start comparing this with military expenditures, like we've spent, I believe, $260 billion in Iraq, well, the insurance companies have, without reinsurance, $347 billion, so as far as if the money is there, it's there and they specifically prepare for extremely high rates of re-insurance. 156 00:21:53.360 --> 00:22:00.360 The way insurance companies, lots of people think that they run on these extremely predictable things of what's going to happen, 157 00:22:00.360 --> 00:22:09.360 but insurance companies actually plan always to be prepared for a one in a hundred year catastrophe that they can't, that there's no way of predicting. 158 00:22:09.360 --> 00:22:19.360 One of the testimonies I found was about the Northridge earthquake where they were asking the insurance industry on its capability to handle future earthquakes. 159 00:22:19.360 --> 00:22:49.360 and the people gathered from the insurance industry pretty much told the government that they could take 10 Northridge earthquakes at the same time, so, and that's just in their surplus, they just act upon what should happen, the probabilities like of how often a hurricane happens, affects more the rate of return they offer to their investors and the profits they make, but their actual ability 160 00:22:49.360 --> 00:23:04.360 Another thing I wanted to point out that earlier as I mentioned that the goal of the state would be to completely bankrupt the insurance company would be pretty problematic, too, in just the way insurance companies deal with their insurance. 161 00:23:04.360 --> 00:23:11.000 to completely bankrupt the insurance company would be pretty problematic, too, 162 00:23:11.000 --> 00:23:14.320 in just the way insurance companies deal with their insurance. 163 00:23:14.320 --> 00:23:20.880 That no insurance company ever places itself solely in one area, 164 00:23:20.880 --> 00:23:25.480 that it's the nature of insurance companies to even geographically diversify their risk. 165 00:23:25.480 --> 00:23:28.840 The insurance companies, they'll have maybe a certain market share. 166 00:23:28.840 --> 00:23:33.720 They'll have a 20% market share and they will stop accepting policies, 167 00:23:33.720 --> 00:23:39.840 Even if people ask him, they don't want to sell any more policies that it won't be just one insurance company that you're fighting. 168 00:23:39.840 --> 00:23:48.640 You'll be actually... the state attacking would be fighting several insurance companies and you don't know where all of them are from. 169 00:23:48.640 --> 00:23:57.240 For example, let's say you were attacking anarchist Luxembourg and there's five insurance companies that are sharing the area. 170 00:23:57.240 --> 00:24:04.120 Well, one insurance company might be a French insurance company, another one might be a German one, 171 00:24:04.120 --> 00:24:11.040 you know, another one might be an Italian one. They cover different areas that even if you wanted to attack the insurance company directly, 172 00:24:11.040 --> 00:24:17.080 which one do you go to first and where do you even attack it or which one are you bankrupting at the time? 173 00:24:17.080 --> 00:24:26.120 And it becomes very questionable on that level. And even the reinsurance markets get even more interesting 174 00:24:26.120 --> 00:24:35.120 Because even in the U.S. now, 50% of all reinsurance is done on an international level. 175 00:24:35.120 --> 00:24:41.480 So if the state was attacking the anarchist Luxembourg, and let's say they're attacking, 176 00:24:41.480 --> 00:24:47.000 they've decided there's, for example, like five insurance companies that are going to attack the one that's from France. 177 00:24:47.000 --> 00:24:50.960 So they're trying to attack the one that's from France, but the one that they're attacking, 178 00:24:50.960 --> 00:24:55.160 the company that's from France, could be insured by, reinsured by a company in Cambodia. 179 00:24:55.160 --> 00:25:01.320 So for them to destroy the insurance company in France, they'd have to bankrupt the one in Cambodia as well. 180 00:25:01.320 --> 00:25:07.720 So it becomes problematic that the state loses complete loss of who the target is. 181 00:25:07.720 --> 00:25:14.560 They can no longer, as I was saying, just take the government infrastructure, but they can't bankrupt just one company. 182 00:25:14.560 --> 00:25:21.160 They have to bankrupt several insurance companies, and on top of that, they have to bankrupt plenty of reinsurance companies. 183 00:25:21.160 --> 00:25:41.080 at the bankrupt private defense companies, and at the same time, at one point, they never know who's who almost like there's sense of a target completely disappears and that in the end becomes the greatest advantage of the anarchist through the insurance and reinsurance markets is that you no longer know who to attack.