Monday, October 7, 2013

The Logical Absurdity of Libertarianism - Partial Omniscience

  1. Our current system is based on the assumption that congresspeople are omniscient (see below)
  2. The political process does not adequately communicate the preferences of citizens (source)
  3. Therefore, the provision of public goods is suboptimal (source)

With the help of equations and diagrams, Samuelson showed how the planner would derive for each individual his demand function and the collective consumption goods that would contribute to his utility maximization. In this system, the planner is expected to have an omniscient presence and be able to ascertain individual preferences even when they are not voluntarily revealed. Samuelson attempted to show the combination of public and private goods and their distribution that would maximize social welfare. His concern was with the total community's welfare and with all goods; it did not have much to do with the central reality of the budget in the ordinary world. - A. Premchand, Government Budgeting and Expenditure Controls: Theory and Practice
"Market failure" has always been defined as being present when conditions for Pareto-optimality are not satisfied in ways in which an omniscient, selfless, social guardian government could costlessly correct. One of the lessons of experience with development is that governments are not omniscient, selfless, social guardians and corrections are not costless. - Anne O. Krueger, Government Failures in Development
The traditional social welfare approach implicitly and often explicitly assumes an omniscient benevolent dictator (see Brennan and Buchanan 1986; Buchanan 1991). The dictator has the power to put all political ideas into action. He is completely informed and has the best of intentions. He wants to help individuals to reach the highest utility possible according to their own evaluations. - Bruno S. Frey and Alois Stutzer, Mispredicting Utility and the Political Process
When arguing that government intervention is needed to correct market failures when public goods, externalities and other sorts of market failures are present, the economics literature often makes the implicit assumption that these failures can be corrected at zero cost. The government is seen as an omniscient, benevolent institution that dictates policies in order to achieve a Pareto-optimal allocation of resources. The public choice literature challenges this utopia model of government by examining not how governments may or ought to behave, but how they do behave. It reveals that governments, too, can fail in certain ways. - Camilla Bretteville Froyn, International environmental cooperation: the role of political feasibility
Surprisingly, prior to 1957, economists stopped short when confronted with political markets, abandoned homo economicus, and fell back upon notions of impartial, omniscient, public interest motivated government, despite millennia of history that clearly invalidated such premises. In large part, this bifurcation in the research program reflected the utility perceived by economists from their role as philosopher-kings, an elite with acknowledged special access to their sovereign. Juvenile as this perception now seems, it was the dominant view among economists prior to the public choice revolution. It remains the dominant view, unfortunately, among the Ivy League elite that still controls the debate on the economics of underdevelopment. - Charles K. Rowley, Institutional Choice and Public Choice: Lessons for the Third World
Samuelson, laying particular emphasis on the problem of preference revelation, takes as a premise the existence of an omniscient planner. - Christian Bastin, Theories of Voluntary Exchange in the Theory of Public Goods
Under this condition the key difficulty of getting voters to reveal the relative intensities of their preferences for various public goods is virtually eliminated through the free exchange of votes in markets, and vote trading becomes a decentralized way for obtaining information on public goods, which is just as efficient as the private goods market is at obtaining information about consumer preferences. The omniscient benevolent dictator so frequently invoked in social welfare theory can be replaced by a system of decentralized markets. - Dennis C. Mueller, Geoffrey C. Philpotts, Jaroslav Vanek, The Social Gains From Exchanging Votes: A Simulation Approach
The new welfare economists view private markets as failing extensively because of perceived weaknesses in property rights, pervasive externalities and public goods and widespread asymmetries in information. In contrast, they view democratic government as benevolent, omniscient and impartial in its role as the White Knight riding to rescue individuals from unavoidable private market failures (Baumol and Oates, 1988). The public choice revolution redressed this bias by analysing government as it is and not as a figment of some excessively cloistered imagination. - Donald Wittman, Efficiency of Democracy?
In what follows we shall assume an omniscient planner who seeks to maximize social welfare subject to the scarcity constraints of the economy. This is standard practice in normative economics. - Elisha A. Pazner, Merit Wants and the Theory of Taxation
Standard theory pronounces these situations to be cases of market failure because that theory, blandly assuming a perspective of imagined omniscience (and skillfully side-stepping the problems of interpersonal comparisons of utility) believes it possible to identify the resulting market outcomes as socially inferior to patterns of resource alocation attainable through government intervention. From this perspective the market must, in such situations, fail to achieve that which is its assigned function to achieve, viz. a socially optimal pattern of resource allocation. - Israel M Kirzner, The Driving Force of the Market: Essays in Austrian Economics
The complexities of modern politics and bureaucracy should not, however, conceal the underlying realities, and gross misunderstanding can result if individual participation in, and reaction to, public decisions is either neglected or assumed away. The omniscient and benevolent despot does not exist, despite the genuine love for him sometimes espoused, and, scientifically, he is not a noble construction. To assume that he does exist, for the purpose of making analysis agreeable, serves to confound the issues and to guarantee frustration for the scientist who seeks to understand and to explain. - James M. Buchanan, Public Finance in Democratic Process
The possible advantages are, however, greatly increased when the unrealistic assumption of omniscient planning is relaxed and the preference-revelation problems in a world of diverse preferences are explicitly recognized. - John G. Head, Public Goods and Multi-Level Government
The traditional approach describes the allocation and distributive failures of the market, and the normative role of government in correcting those failures. Tax revenues from several sources are put into a single pot, a general fund, from which public services are provided. Equity in raising taxes is judged by ability to pay rather than by the benefit criterion on which earmarking is based. In the orthodox account, the government is shown to act as an omniscient and benevolent institution which improves on the market outcome and achieves an efficient allocation of resources. Traditional theory employs the device of a 'social welfare function' which guides an independent decision-taking budgetary authority. Critics of this account argue that in this approach, 'the government' is a black box into which voter preferences are fed and from which outcomes, which are claimed to be welfare-maximizing, emerge. - Margaret Wilkinson, Paying for Public Spending - Is There a Role for Earmarked Taxes
In Samuelson’s model, the optimum value of public goods expenditure is determined by an ethical observer who has information on the preferences and incomes of all individuals in the economy. - Marianne Johnson, Public Economics, Market Failure, and Voluntary Exchange 
The well-known Samuelson (1954, 1955) public goods articles offer a good example. Samuelson titles his first article “The Pure Theory of Public Expenditure,” indicating that his analysis of a possible market failure in the production of public goods is, in fact, not a theory, but the theory, of public expenditure even though the article contains no analysis of how government would succeed in producing public goods where the market would fail. The only way Samuelson's public good theory can be a theory of government expenditure is if the government is an omniscient benevolent dictator. - Randall G. Holcombe, Make Economics Policy Relevant: Depose the Omniscient Benevolent Dictator
Though an old theme, Samuelson's rigorous analysis of public goods in a general equilibrium setting (Samuelson, 1954) captured the attention of a wide range of theorists, and soon became the center of fiscal theory. Wicksell's concern with how to secure preference revelation was noted, but was set aside as unmanageable by economic analysis. Implementation of budget choice was again left to an omniscient referee. - Richard A. Musgrave, Public finance and the three branch model
The problem would disappear if government were omniscient, as implicitly assumed by Hotelling, but government is not omniscient and throughout his career Coase has insisted very sensibly that in evaluating the case for public intervention one must compare real markets with real government, rather than real markets with ideal government assumed to work not only flawlessly but costlessly. - Richard A. Posner, Nobel Laureate: Ronald Coase and Methodology
The essential point is that, in the standard formulation, the omniscient economist-observer (Graaff 1957, p. 13) is presumed to advise a benevolent despot (4.4). That the observer cannot 'know' the disparate desiderata of individual, autonomous agents is clear (Chapter 6). That the benevolent despot formulation unrealistically suppresses narrowly construed self-interest is also clear. In the event, both because the observer can only presume to know the relevant preference (and value) structures, and because any 'index of group welfare just inevitably make normative judgements in which the gains to some are weighed against the losses to others', it is plausible to argue that, in fact, 'measures of group welfare used by practitioners have been developed in an ad hoc manner with little or no welfare economic justification' (Slesnick 1998, p. 2137). - Timothy P. Roth, The Ethics and the Economics of Minimalist Government
PPB analysis rests upon much the same theoretical grounds as the traditional theory of public administration. The PPB analyst is essentially taking the methodological perspective of an "omniscient observer" or a "benevolent despot." Assuming that he knows the "will of the state," the PPB analyst selects a program for the efficient utilization of resources (i.e., men and material) in the accomplishment of those purposes. As Senator McClelland has correctly perceived, the assumption of omniscience may not hold; and, as a consequence, PPB analysis may involve radical errors and generate gross inefficiencies. - Vincent Ostrom and Elinor Ostrom, Public Choice: A Different Approach to the Study of Public Administration


  1. Reading this I feel compelled to give you some advice Xero. The usual purpose of quotes is to help illustrate your own points and to reference certain authors opinions in response to your own argument. Posts consisting of two or three lines of very limited argument then, a long list of quotes is tedious & is not a substitute for making your own points. A reader at least expects some context & background for the quotes being used, & some interpretation so they do not have to do all the work of reconstructing your meaning themselves.
    & put simply for virtually all people such a forest of quotes is simply tl;dr (too long didn't read).

    (BTW This post is separate from our debate on pragmatic socialism and prices)

    1. Thanks for your feedback...I appreciate it.

      I made a few claims and thoroughly substantiated them. Sure I could have added more value...I could even have written an entire book on the subject. But in the meantime, I've aggregated highly dispersed information...which took considerable time, effort and sacrifice to do.

      This means that if I get killed tomorrow by a shark falling from the sky...then at least a good portion of the grunt work has already been accomplished and shared. I made the effort to find the flour, the salt, the yeast, the sugar and so on. I consolidated all the basic ingredients and made them accessible to many people. These inputs are all together which increases the possibility that a baker will take them and use them to make bread which virtually all people can eat and benefit from.

      In other words, I see this more as a collaborative effort. I'm helping to lay the foundation that anybody can build on.

  2. Our current system is based on the assumption that congresspeople are omniscient (see below)

    This is completely and utterly false. And you didn't "substantiate" this claim in the slightest. You swept up a collection of assertions. That isn't evidence.

    There is a reason so few people engage with you. They value their time.

    1. If you don't trust what Richard Musgrave has to say about public finance...then who would you trust? Noah Smith? Feel free to ask him. Let me know what he says.

    2. I don't as a rule arrive at my opinions by "trusting" what other people say. I rely on seeing for myself the relative merit of what other people attempt to show. This is an approach to knowledge that you do not appear to be familiar with as evidenced by your extensive (and mindless) reliance on quotations.

      I would be happy to nominate you for an Internet Stupidity award.

    3. So show me that congress knows what the demand is for public goods.

  3. It's not worth the time. The irony of dealing with self professed Libertarians is twofold: 1. There is no reasoning with Libertarians. 2. Libertarians objectively know (more precisely, they claim to objectively know) with absolute certainty their ideology is always right. The best way to deal with Libertarians is to just ignore them. They needed to be treated like creationists.