Tuesday, September 8, 2015

Cheating vs Competing

Reply to: What Would Bastiat Do?

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Lovely story! Bastiat is beautiful! 

As lovely as your story is… there are a few imperfections. 

Have you ever purchased any orchids from Australian Orchid Nursery (AON)? They offer some really neat orchids. Unfortunately, government regulations make it prohibitive for Americans such as myself to order orchids from foreign nurseries. It’s not impossible… but it’s certainly a hassle. 

So Australia has AON and Holden. AON produces orchids and Holden produces cars. We can guess that Holden has a lot more influence than AON does. This disparity in influence reflects their disparity in income. Consumers give Holden a lot more money than they give to AON. 

Because Holden has more income/influence than AON does… it has more control over how society’s limited resources are used than AON does. Holden has more influence over determining how Australia’s land, workers, raw materials and other limited resources are used. Earning more money allows Holden to compete more resources away from other uses… such as supplying orchids.

Now, if America eliminated its onerous restrictions on importing orchids then I’d happily order orchids from AON. And I certainly wouldn’t be the only American to do so. AON’s income/influence would increase and this would allow it to compete more of society’s limited resources away from other uses… such as supplying cars. 

Hopefully this is all pretty straightforward and sensical. The better a company serves society, the more money it will receive and the more influence it will have over how society’s limited resources are used. 

better service -> more income -> more influence

Things get tricky when it comes to lobbying. Like, real tricky. 

We established that Holden should have more influence (than AON does) over how society’s limited resources are used. If we eliminated lobbying then we’d have to change what we’ve established like so…

Holden should have more influence (than AON does) over how society’s limited resources are used… in the private sector

This condition logically implies that AON and Holden should have equal influence in the public sector. 

AON and Holden should have unequal influence in the private sector but equal influence in the public sector? Holden pays a lot more taxes than AON does… but when it comes to deciding where a bridge should be built… they should each get one vote? 

You wrote this…

As Bastiat expressed, an economic decision must be made by considering all aspects, the full picture. He conceptualised the idea of opportunity costs. Which in this case should be applied so the tax dollars are used not to the most persuasive or generously lobbying industry, but by an independent, completely objective body that takes in the full picture and decide where best to provide the fund.

… and this…

Ensuring the decisions on taxes, funding, allocations, are made with educated models and hypothesis.

Bastiat, on the other hand, wrote this…

Apparently, then, the legislators and the organizers have received from Heaven an intelligence and virtue that place them beyond and above mankind; if so, let them show their titles to this superiority. — Frédéric Bastiat, The Law 

… and this…

Thus, considered in themselves, in their own nature, in their normal state, and apart from all abuses, public services are, like private services, purely and simply acts of exchange. — Frédéric Bastiat, Private and Public Services 

… and this…

Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race. — Frédéric Bastiat, Economic Fallacies

If educated models and hypothesis can correctly determine where a bridge should be built… then they can correctly determine how land should be used. And if they can correctly determine how land should be used… then they can correctly determine how all other resources should be used. Which would make markets entirely unnecessary.  

You’re under the impression that the government can do a good enough job of allocating society’s limited resources. If the government does enough homework… then it can build a bridge where it will do enough good. 

But, at the same time, you’re also under the impression that the government can’t do a good enough job of allocating society’s limited resources. The government can never do enough homework to grow wheat where it will do enough good. 

Maybe it’s something like… “close enough” counts for horseshoes, hand grenades and bridges. But when it comes to things like food, cars and orchids… “close enough” doesn’t count. 

We’re more concerned with the optimal supply of orchids than we are with the optimal supply of bridges? 

The optimality of supply depends entirely on the interests of consumers. The supply of orchids is a lot closer to optimal than the supply of bridges is. This is because the supply of orchids more closely reflects the interests of consumers than the supply of bridges does. We know that this is true because all consumers are free to shop in the private sector but relatively few consumers are free to shop in the public sector. 

In order to ensure the optimal supply of bridges… we simply need to give all consumers the freedom to shop in the public sector (pragmatarianism). Holden would have more influence than AON in the public sector just like it has more influence than AON in the private sector. Do we want Holden to have more influence than AON? Evidently it is in the interest of consumers! Consumers give more money to Holden than they give to AON. Therefore, according to the spending decisions of consumers, it’s in their interest that Holden should have more influence than AON does when it comes to determining where a bridge should be built. 

As you clearly explained though… unfortunately… it’s in the interest of Holden to use the government to cheat (limit competition). Fortunately… it’s really in the interest of consumers to prevent Holden from cheating!

As Bastiat pointed out… public services are simply acts of exchange. Taxpayers are going to want to trade their taxes for whichever public services provide them with the maximum benefit. The only taxpayers who derive any benefit from the government helping Holden to cheat are the owners and employees of Holden. All the other taxpayers are harmed (derive a negative benefit) by the government helping Holden to cheat. Therefore, nearly all taxpayers would boycott whichever government organization (GO) helped Holden to cheat. This GO would realize that it could increase its income/influence by preventing, rather than facilitating, cheating. If it didn’t realize this… or it didn’t realize it until it was too late… then it would go bankrupt. 

Lobbying shows us the seen (taxpayers who benefit from Holden cheating)… but it doesn’t show us the unseen (taxpayers who benefit from Holden competing). But it should be pretty straightforward and sensical that 99.99% of taxpayers benefit from Holden competing. Only a vanishingly small percentage of taxpayers benefit from Holden cheating. 

The problem with the current system is that it doesn’t show us the unseen. We aren’t free to boycott the GO that facilitates cheating. But we would be free to do so if we could choose where our taxes go. Creating a market in the public sector would show us the unseen. 

If you get a chance you might be interested in this story of mine… The Inadequacy Of The Opportunity Cost Concept.

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