Thursday, December 12, 2013

Pragmatarianism vs Anarcho-capitalism

Discussion on David Friedman's blog entry...The Killer App for Google Glass


Xero: What if the government ended up being responsible for creating the app? Then the usual suspects could list it along with the internet.

So is it market failure that the private sector hasn't already created this app?

See...I'm pretty sure this is an example of why pragmatarianism is superior to anarcho-capitalism. With anarcho-capitalism...the demand would exist but the supply wouldn't reflect it. It might eventually reflect it...but who knows when. But with a pragmatarianism system...if there was sufficient demand...a government program could be created to work on the provision of whatever it was that people were willing to spend their taxes on.

The government would be the embodiment of demand unmet by the private sector. How could that not be better than anarcho-capitalism?

Tibor Mach:  How does the government judge wether there is or is not the demand? How does anyone do that without the market? The problem is that if David decides to invest in his killer app tomorrow, he might become a very succesful businessman ... or lose all his invested money (since for example I would not want an app like that and I would even probably be a little bit hostile to anyone using it on me...I might get used to it after some time but maybe I would not). If government does, it takes all our money and either makes a success which however does not mean giving the taxpayers a share of profits or it is a failure...which means not only that money it collected is wasted but more often than not it also means it collects even more money to subsidize the "important feature of the society" for which there is no (sufficient) demand but that is apparently not important. So that is why letting government invest in business projects is not a good idea. It may be that some demand is not recognized or is recognized with a significant delay on a private market. But there are no reasons to expect government to do better...and a plenty to expect it to do worse.

Xero: you're correct... demand cannot be accurately determined without a market... which is exactly why we should create a market in the public sector (pragmatarianism FAQ).

In an anarcho-capitalist system...the demand would be there...but there's no guarantee that Atlas will take the risk to do something about it. But in a pragmatarian system, taxpayers could allocate their taxes accordingly. Resources would be directed by demand.

In an anarcho-capitalist system...the ball would just sit there indefinitely. In a pragmatarian system...the ball would start rolling as soon as there was sufficient demand. Therefore, pragmatarianism is better than anarcho-capitalism.

Tibor Mach: Who decides how freely you can allocate your taxes? If there is total freedom, you don't actually have to pay them (you allocate them on yourself and there is just the cost of collecting them), if someone says you cannot allocate it on this or that, you have problems. If the government says you can spend it either on apples or oranges when I want bananas, then I will choose oranges which I prefer to apples but not to bananas.

Who decides how high the taxes are? If you have to pay 10% while the optimum height would be 5% then again you have these inefficiencies.

So either you have a system where you don't have to pay the taxes really anyway...and that de facto is anarcho-capitalist even if there is some institution out there which calls itself government, or you have politicians decide how large the taxes will be and what are the restrictions of what you can spend it on. And that leads to many problems. Also, since I can allocate them relatively freely, there might probably be strong freerider tendencies. I want something but it only is possible if a lot of other people decide to allocate their taxes to. My own contribution does not change the outcome, so I instead spend it on something else making myself better off. Everyone knows that so a lot of people will do the same...and you don't get the think that would benefit "us all" anyway.

So I'd say pragmatarianism either collapses to our current system (or something very close) or to anarcho-capitalism.

Xero:  voters would decide what's on the menu and taxpayers would decide which items they "order". If enough voters decide that David's app should be on the menu...then he would be able to spend his taxes on it. Why not allow taxpayers to order from any country's menu?

Congress would still be in charge of the tax rate. Like any organization, their goal would be to maximize their own revenue. If they set the tax rate too high...or too low...taxpayers would give them less positive feedback (tax dollars). So the tax rate that maximized their revenue would be the optimal tax rate.

Eh? The free-rider problem? Are you assuming that in a pragmatarian system people would intentionally deviate from their preferences more than they are currently forced to? I drew a drawing to illustrate this...Incentivizing Honest Preference Revelation for Public Goods.

If anarcho-capitalism is the optimal allocation of resources... then why wouldn't applying the invisible hand to the public sector lead to anarcho-capitalism? If it didn't lead to anarcho-capitalism...then clearly anarcho-capitalism wasn't the optimal allocation of resources. This is a very simple but solid proof that pragmatarianism is superior.

Tibor Mach: There is a problem with this also.

Majority chooses what you can spend your tax money on, right? Now, it is in my interest to limit the "menu" so that you basically only can buy the items I want you to spend money on. If I can succeed in making the menu more limited - towards things I like the money spent on - I can benefit on the fact that you are now forced to choose between the subsidies for apples or oranges (both of which I like) whereas otherwise you would choose to subsidize bananas.

I'm not sure if this would lead to better or worse results than our system, maybe a bit better. But still you would have this element present. It would be possible for the majority to limit the choices of the minority so that they effectively have to subsidize the majority choice.

You don't have this kind of problem on the ordinary (free) market. The problem is that voters, when they restrict the choices on the menu, don't bear the costs of doing so...while they potentially reap the benefits.

I think your system would lead to competing political groups trying to restrict the menu to precisely the items they are interested in. And that is not very different from our present system.

Xero: earlier you acknowledged that we can't know what the demand is in the absence of a market. But now you're saying that a pragmatarian system (market in the public sector) might be a bit better than the current system. That's saying that socialism would be a bit worse than capitalism. Resources can't be efficiently allocated if we don't know what people's preferences truly are.

I don't know what the majority would want you to spend your tax dollars on. But it seems doubtful that creating a market in the public sector would decrease the quantity/quality of available options. This is because consumers want better options...they reward the producers who offer the best options.

You certainly wouldn't have the problem of concentrated benefits and dispersed costs in a pragmatarian system. This is because creating a market in the public sector would eliminate rational ignorance.