First note, limited liability seems to be one of the most important AND VALUABLE inventions of Western Civilization. It seems entirely possible to me that WE WOULD ALL be better off if the banking system worked like a platonic ideal system where the illusion that electrons in a computer memory somewhere, in the right somewhere that is, really ARE "good as gold." Better than gold, actually, since gold seems to have been replaced by fiat currency judging by the actual mass behavior of the world, which thinks the US Dollar is the reserve currency despite (because?) of its abandonment of the gold standard.

Yes, the kind of conservatism that looks down its long nose into the past regrets going off gold, regrets making depositors whole, regrets a federal reserve system, regrets national health insurance and social security. Oh the moral hazard!

Meanwhile, the largest businesses in the history of the world exist today and are overwhelmingly organized as joint stock corporations with limited liability. It is not that this is a good or bad thing in the moral sense, or rather, maybe it is maybe it isn't but who cares? It is that more economic activity has been carried out under the limited liability structures put in place in the last few hundred years than in any other economic structure ever conceived by intelligence, artifical, natural or alien. There is something about limiting liability that just WORKS, in the sense of making if not all of us richer, certainly ALMOST all of us richer.

So what is the bad thing that would happen if ALL deposits were covered by deposit insurance? Why don't we do it that way?

I see deposit insurance the same way I see building codes, electric codes, automobile safety regulations, and a raft of other features of the modern political economy. The two things that make us rich are standardization and mass production, and actually they are both the same thing because standardization absolutely enables the possibility of mass production. And standardization means we are presented with a dizzying and confusing array of products and services that are no more complicated than they need to be. I don't have to know the hygiene habits of a guy running a restaurant in a city I rarely visit: this is America buddy, and the nanny state is successfully presiding over a remarkably low rate of people being poisoned by mishandled food, so there you go.

What is the bad thing that would happen if all these businesses who effectively need accounts with millions of dollars in them were to have that as a commodity they could count on, like water that doesn't make you sick, electricity at a predictable frequency and voltage, and cars that behave in remarkably safe ways when you crash them?

R: