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Economics of Extortion - Open Knowledge — LiveJournal

Feb. 6th, 2007

01:51 pm - Economics of Extortion

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Anyone know of any articles that deal with the optimal strategy for dealing with extortion? For example, suppose you lived in a neighborhood controlled by a mafioso. Every month he demands 5% of your income or he will beat you up. If you pay the tax, you avoid immediate injury or death, but you finance the mafioso's ability to hire more goons and expand his operations. Thus empowered, he may come back at you for even more money in the future. When should you pay the tax? When should you fight?

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From:crasch
Date:February 7th, 2007 02:23 pm (UTC)
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Yes! Or carnival bugs!
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From:perich
Date:February 6th, 2007 07:14 pm (UTC)
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Off the top of my head, there's the last chapter of Rothbard's Man, Economy and State: "The Economics of Violent Intervention in the Market."

online for free here

I don't know that it specifically addresses your question, but it's a good start.
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From:crasch
Date:February 7th, 2007 02:23 pm (UTC)
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Thanks!
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From:vyus
Date:February 6th, 2007 07:17 pm (UTC)
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it seems analogous to frivolous lawsuits, which might have more attention. what's the economic point where your business picks up its guns and lawyers and fights the various lawsuits from people doing dumb things marginally related to your product/store?

now that i'm thinking of it, there are even individuals who run around making everyone scared because they are not afraid to sue for no real reason, and the cheapest way to go is not to fight, but to settle. and settling just encourages the plaintiff to do it again.
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From:crasch
Date:February 7th, 2007 02:24 pm (UTC)
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I agree, those seem to be analogous situations.
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From:olegvolk
Date:February 6th, 2007 07:26 pm (UTC)
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To me, it seems that the best way is to pay and act meek up while killing everyone involved as opportunities present themselves.
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From:resipisco
Date:February 6th, 2007 10:32 pm (UTC)
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Now we know what's hidden inside that camera of yours.
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From:tomcatshanger
Date:February 7th, 2007 05:32 am (UTC)
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No, he has rifles for that.
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From:crasch
Date:February 7th, 2007 02:28 pm (UTC)
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I've sometimes posited "If I got cancer, and had only six months to live, whose assassination would advance the cause of liberty more?" The problem is that you risk turning the person you kill into a martyr (think MLK, JFK, etc.)
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From:sgtkane
Date:February 6th, 2007 07:49 pm (UTC)
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Too many variables I think.

For example are they demanding 5% of your gross or you net?

How long can you afford to be out of work?

What is the cost going to be to defend yourself (direct costs such as weapons, training, your own goons, etc)?

The key is likely to be a ratio of those three points. I don't see the mafioso's ability to expand his business as playing much of a role, as if you are doing a constant evaluation (and the other factors hold constant) you will eventually reach a point where it is more cost effective to defend yourself than to pay out.

That said, I believe in defending yourself right from the start, whacking the mafioso and taking over his business.
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From:danlyke
Date:February 6th, 2007 08:33 pm (UTC)

There are also aspects of the supply side...

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There's also the question of whether or not that mafia boss is protecting you from other worse threats. It's oft-repeated that the reason that the Cosa Nostra became so successful in New York City was that, if you were Italian, dealing with the mafia beat dealing with the Irish cops.

It's weird, because you don't want one protection racket to necessarily become a monopoly (then you have a government), but you want one to be overwhelmingly successful so that you have less violence.
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From:crasch
Date:February 7th, 2007 02:43 pm (UTC)

Re: There are also aspects of the supply side...

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Indeed. There's also the question, how does an extortion racket go from being something people condemn, to "legitimatized extortion" which many people applaud. Most people, I suspect, don't think of the Feds as a particularly successful mafia.
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From:crasch
Date:February 7th, 2007 02:29 pm (UTC)
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I agree, those factors are important. It would be fascinating to know how they play out in real life.
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From:docscarabus
Date:February 6th, 2007 09:24 pm (UTC)
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Dane-Geld
A.D. 980-1016

It is always a temptation to an armed and agile nation
To call upon a neighbour and to say: --
"We invaded you last night--we are quite prepared to fight,
Unless you pay us cash to go away."

And that is called asking for Dane-geld,
And the people who ask it explain
That you've only to pay 'em the Dane-geld
And then you'll get rid of the Dane!

It is always a temptation for a rich and lazy nation,
To puff and look important and to say: --
"Though we know we should defeat you, we have not the time to meet you.
We will therefore pay you cash to go away."

And that is called paying the Dane-geld;
But we've proved it again and again,
That if once you have paid him the Dane-geld
You never get rid of the Dane.

It is wrong to put temptation in the path of any nation,
For fear they should succumb and go astray;
So when you are requested to pay up or be molested,
You will find it better policy to say: --

"We never pay any-one Dane-geld,
No matter how trifling the cost;
For the end of that game is oppression and shame,
And the nation that pays it is lost!"

Rudyard Kipling
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From:crasch
Date:February 7th, 2007 02:43 pm (UTC)
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Thanks!
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From:olegvolk
Date:February 6th, 2007 10:04 pm (UTC)
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There's pragmatism and there's ethics. Sometimes pragmatism demands obedience while ethics urge rebellion.
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From:crasch
Date:February 7th, 2007 02:42 pm (UTC)
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I agree that it's a special case of a general phenomenon. But just as you might like to know the details of an Ebola infection, even though you know it's just a special case of the general theory of disease, I'd like to know the details of this particular social pathology. Think Venkatesh's analysis of the economics of drug dealing.
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From:(Anonymous)
Date:February 8th, 2007 04:34 am (UTC)

Paying the Dane-geld.

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" But we've proved it again and again,
That if once you have paid him the Dane-geld
You never get rid of the Dane."

It's great writing and true beyond all measure. However, Rudyard Kipling was also a leading advocate of WW-I in which his son died:
http://en.wikipedia.org/wiki/Rudyard_Kipling

After the war he wrote "If any question why we died/ Tell them, because our fathers lied". That's why all sons die in all wars.

In general I think that most people underestimate the cost of paying extortion (whether it has been legitimized as taxes or not) and overestimate the alleged protection benefits received.

Humans are creatures of habit. Once you pay the Dane-geld, you will never get rid of the Dane.
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