Anarcho-capitalism VS Pragmatarianism

[Also posted on Medium: How To Train Your Leviathan]

Patrik Schumacher, who I blogged about yesterday, replied to my tweet...

@Pragmatarian anarcho-capitalism is a fascinating hypothesis ..a vanishing point showing the most (probably only) viable direction of travel

— Patrik Schumacher (@patrik_schu) January 27, 2017

It's super cool that he replied!

Murray Rothbard is largely acknowledged as the founder of anarcho-capitalism.  He really hated the government.  If there had been a button that would have entirely destroyed the government, then he would have pushed the button until his thumb blistered.

If Rothbard had pushed the button, then he, and he alone, would have answered the age old question... what is the proper scope of government?

Let's carefully consider what Herbert Spencer had to say about the proper scope of government...

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To the assertion that the boundary line of State-duty as above drawn is at the wrong place, the obvious rejoinder is— show us where it should be drawn. This appeal the expediency-philosophers have never yet been able to answer. Their alleged definitions are no definitions at all. As was proved at the outset, to say that government ought to do that which is "expedient," or to do that which will tend to produce the "greatest happiness," or to do that which will subserve the "general good," is to say just nothing; for there are countless disagreements respecting the natures of these desiderata.  A definition of which the terms are indefinite is an absurdity. Whilst the practical interpretation of "expediency" remains a matter of opinion, to say that a government should do that which is "expedient," is to say that it should do, what we think it should do!

Still then our demand is—a definition. Between the two extremes of its possible action, where lies the proper limitation?  Shall it extend its interference to the fixing of creeds, as in the old times; or to overlooking modes of manufacture, farming operations, and domestic affairs, as it once did; or to commerce, as of late—to popular education, as now—to public health, as already—to dress, as in China—to literature, as in Austria—to charity, to manners, to amusements?  If not to all of them, to which of them?  Should the perplexed inquirer seek refuge in authority, he will find precedents not only for these but for many more such interferences.  If, like those who disapprove of master-tailors having their work done off the premises, or like those who want to prevent the produce of industrial prisons displacing that of the artizans, or like those who would restrain charity-school children from competing with seamstresses, he thinks it desirable to meddle with trade-arrangements, there are plenty of exemplars for him.  There is the law of Henry VII., which directed people at what fairs they should sell their goods; and that of Edward VI., which enacted a fine of £100 for a usurious bargain; and that of James I., which prescribed the quantity of ale to be sold for a penny; and that of Henry VIII., which made it penal to sell any pins but such as are "double headed, and their head soldered fast to the shank, and well smoothed; the shank well shaven; the point well and round-filed and sharpened."  He has the countenance, too, of those enactments which fixed the wages of labour; and of those which dictated to farmers, as in 1533, when the sowing of hemp and flax was made compulsory; and of those which forbade the use of certain materials, as that now largely-consumed article, logwood, was forbidden in 1597.  If he approves of so extended a superintendence, perhaps he would adopt M. Louis Blanc's idea that "government should be considered as the supreme regulator of production;" and having adopted it, push State-control as far as it was once carried in France, when manufacturers were pilloried for defects in the materials they employed, and in the textures of their fabrics; when some were fined for weaving of worsted a kind of cloth which the law said should be made of mohair, and others because their camlets were not of the specified width; and when a man was not at liberty to choose the place for his establishment, nor to work at all seasons, nor to work for everybody.  Is this considered too detailed an interference?  Then, perhaps, greater favour will be shown to those German regulations by which a shoemaker is prevented from following his craft until an inspecting jury has certified his competence; which disable a man who has chosen one calling from ever adopting another; and which forbid any foreign tradesman from settling in a German town without a licence. And if work is to be regulated, is it not proper that work should be provided, and the idle compelled to perform a due amount of it?  In which case how shall we deal with our vagrant population?  Shall we take a hint from Fletcher of Saltoun, who warmly advocated the establishment of slavery in Scotland as a boon to "so many thousands of our people who are at this day dying for want of bread"? or shall we adopt the analogous suggestion of Mr. Carlyle, who would remedy the distresses of Ireland by organizing its people into drilled regiments of diggers?  The hours of labour too—what must be done about these?  Having acceded to the petition of the factory-workers, ought we not to entertain that of the journeyman-bakers? and if that of the journeyman bakers, why not, as Mr. Oobden asks, consider the cases of the glass-blowers, the nightmen, the iron-founders, the Sheffield knife-grinders, and indeed all other classes, including the hardworked M.P.'s themselves?  And when employment has been provided, and the hours of labour fixed, and trade-regulations settled, we must decide how far the State ought to look after people's minds, and morals, and health.  There is this education question: having satisfied the prevalent wish for "government schools with tax-paid teachers, and adopted Mr. Ewart's plan for town-libraries and museums, should we not canvass the supplementary proposal to have national lecturers? and if this proposal is assented to, would it not be well to carry out the scheme of Sir David Brewster, who desired to have "men ordained by the State to the undivided functions of science"—"an intellectual priesthood," " to develop the glorious truths which time and space embosom*"? Then having established "an intellectual priesthood" to keep company with our religious one, a priesthood of physic, such as is advocated by certain feeless medical men, and of which we have already the germ in our union doctors, would nicely complete the trio. And when it had been agreed to put the sick under the care of public officials, consistency would of course demand the adoption of Mr. G. A. Walker's system of government funerals, under which "those in authority" are "to take especial care" that "the poorest of our brethren" shall have "an appropriate and solemn transmission" to the grave, and are to grant in certain cases "gratuitous means of interment."  Having carried out thus far the communist plan of doing everything for everybody, should we not consider the peoples' amusements, and, taking example from the opera-subsidy in France, establish public ball-rooms, and gratis concerts, and cheap theatres, with State-paid actors, musicians, and masters of the ceremonies: using care at the same time duly to regulate the popular taste, as indeed, in the case of the Art-Union subscribers, our present Government proposed to do?  Speaking of taste naturally reminds us of dress, in which sundry improvements might be enforced; for instance—the abolition of hats: we should have good precedents either in Edward IV., who find those wearing "any gown or mantell" not according to specification, and who limited the superfluity of peoples' boot-toes, or in Charles II., who prescribed the material for his subjects' grave-clothes. The matter of health, too, would need attending to; and, in dealing with this, might we not profitably reconsider those ancient statutes which protected peoples' stomachs by restricting the expenses of their tables; or, remembering how injurious are our fashionable late hours, might we not advantageously take a hint from the old Norman practice, and (otherwise prompted) fix the time at which people should put out their fires and go to bed; or might we not with benefit act upon the opinion of M. Beausobre, a statesman who said it was "proper to watch during the fruit season, lest the people eat that which is not ripe"? And then, by way of making the superintendence complete, would it not be well to follow the example of the Danish king who gave directions to his subjects how they should scour their floors, and polish their furniture?

* See Address to the British Association at Edinburgh, in 1850.

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Lots of Kings have certainly had very different answers to the question of the government's proper scope.

Let's engage in some lateral thinking by asking this question... what is the proper scope of the private sector?  How many people answer this question?  How do they answer it?

Pretty much everybody helps to answer the question of the private sector's proper scope and they do so by spending their money.  Are cars within the proper scope of the private sector?  All the people who buy cars help to answer this question.  Same thing with all the people who invest their money in companies that produce cars.

Rothbard correctly argued that the market is the best way to determine what should be done.  But then he undermined his own argument when he was so happy to admit that he would have been very happy to push a button that would have abolished the government.  By happily pushing the button... he, rather than the market, would have determined what the government should do!  He would have answered the question for everybody!

Of course there isn't a single button that would abolish the government.  So anarcho-capitalism would have to be implemented another way.  It could certainly be implemented through democracy.  It could be implemented through revolution.  It could be implemented by a powerful enough ruler.  But there's only one single way that anarcho-capitalism could be implemented on the basis of its own premise.

If people could choose where their taxes go... aka "pragmatarianism"... then each and every person could use their tax dollars to answer the question... what is the proper scope of government?  Is public education within the proper scope of government?  All the people who gave their tax dollars to public schools would help to answer this question.  If too few people gave their tax dollars to public schools, then the market, rather than voters... or congress... or the president... or Rothbard, would have determined that public education is not within the proper scope of government.

What about compulsory taxation?  Is it within the proper scope of government?  Well... in a pragmatarian system... the IRS really wouldn't collect everybody's taxes.  If you wanted a public school to have your tax dollars... then you'd give your tax dollars directly to that school.  They'd give you a receipt and you'd keep all your receipts in case you needed to prove to the IRS that you had indeed paid your "fair" share.

Therefore, if you did give your tax dollars to the IRS... it would be because you wanted to help fund their efforts to ensure that everybody paid their fair share.  And in giving your tax dollars to the IRS... you would be helping to answer the question of whether compulsory taxation is within the proper scope of government.

So, with all of this in mind, if too few people gave their tax dollars to the IRS, then the market, rather than voters... or congress... or the president... or Rothbard, would have determined that compulsory taxation is not within the proper scope of government.  And voila!  We would have arrived at anarcho-capitalism by taking the only legitimate path.

It's entirely possible that anarcho-capitalism is the correct answer.  But it's essential that we do not leap to this conclusion.  It's imperative that we do not bypass the market process of everybody using their own money to answer the question of what should be done.  We have to understand how and why the market process is the correct process.  Then we can understand how and why the market process will produce the correct answer.  Will the correct answer be anarcho-capitalism?  Personally, I don't think that it will be.  But for sure I could be wrong.  In any case, I understand the market process which is why I will respect whatever answer it produces.  In no case will I feel comfortable overriding or overruling the answer that is produced by the market process.

To place any single possible answer... such as anarcho-capitalism... on any sort of pedestal... implies that the correct answer is easy to guess or divine.  This implication will most certainly cast a shadow over the market process.

While I am a big fan of Rothbard, in this regard I am a much bigger fan of Buchanan...

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I want to argue that the "order" of the market emerges only from the process of voluntary exchange among the participating individuals. The "order" is, itself, defined as the outcome of the process that generates it. The "it," the allocation-distribution result, does not, and cannot, exist independently of the trading process. Absent this process, there is and can be no "order."

What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind? If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront. As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone. In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.

This emphasis is misleading. Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of "as if" functions that are maximized. But these "as if" functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will. - James Buchanan, Order Defined in the Process of its Emergence

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Giving people the freedom to choose where their taxes go will create a market within the public sector.  The market process of people trading their tax dollars for public goods will certainly produce some government "order".  But because I am really not omniscient, I really can't know, beforehand, exactly what the order will be.  However, I do understand the market process itself which is why I will respect the order that it produces far more than I would respect the order produced by any other process.

The order produced by a king?  I'd shit on it.  The order produced by congress and a president?  I'd shit on it.  The order produced by democracy?  I'd shit on it.  The order produced by Rothbard pushing a button?  I'd shit on it.  The order produced by the market?  I definitely wouldn't shit on it.

To be clear, democracy would be needed to implement pragmatarianism.  But democracy really wouldn't be determining the order of government... it would be choosing the system that determined the order of government.  Millions and millions of taxpayers spending their own tax dollars would determine the order of government.

How to get democracy to choose pragmatarianism?  We start small.  We persuade Netflix to allow its subscribers to choose where their fees go.  If we can't persuade Netflix that this process will produce a far superior order... then we'll have to start even smaller.  We'll create our own website where subscribers can choose which articles they spend their fees on.  Once everyone can clearly see that this order is indeed superior, then the NY Times will create a pragmatarian market, so will Netflix and the rest of the dominoes will quickly fall.  The last, and biggest, domino to fall will be the government.  But it will easily fall because by then every voter will clearly see that the order produced by the market is far superior to the order produced by any other system.

In my blog entry, Pushing For A Pubmar, I shared this relevant illustration that took all my artistic skills to create...

Exceptions To Socialism's Shortcomings

Reply to reply: Is Economic Influence Mutually Exclusive?

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Do you want the government to supply donuts? Nope? Why not? Because you believe that impersonal shoppers (government planners (congresspeople)) would get the supply of donuts wrong. Why do you believe that impersonal shoppers would get the supply of donuts wrong? Because you believe that impersonal shoppers couldn't possibly know whether you want more or less donuts at any given time.

Do you want the government to supply defense?  Yup.  Why?  Because you believe that impersonal shoppers will get the supply of defense right.  Why do you believe that  impersonal shoppers will get the supply of defense right?  Because you believe that impersonal shoppers can know whether you want more or less defense at any given time.

Therefore... you believe that impersonal shoppers are partially omniscient.  They can't read your mind when it comes to donuts... but they can read your mind when it comes to defense.

Of course... donuts and defense are different types of goods.  Donuts are a private good while defense is a public good.  Therefore... you believe that impersonal shoppers can't read your mind when it comes to private goods... but they can read your mind when it comes to public goods.

Except... let me guess... as a libertarian you don't want the government to supply ALL public goods... do you?  The standard libertarian response for the proper scope of government is.... defense, courts and police.

Therefore... you believe that impersonal shoppers...

A. can't read your mind when it comes to private goods
B. can't read your mind when it comes to most public goods
C. can read your mind when it comes to defense, courts and police

Coincidentally, this tweet showed up in my feed today...

Humanity did not fall short of the ideals of socialism, socialism fell short of the demands of humanity. - @PeterBoettke

Humanity is never going to fully comprehend or grasp this rule as long as there are people such as yourself who believe that defense, police and courts are exceptions to this rule.

I wonder how much progress could be made in political economy if the best and the brightest among economists, such as Raj Chetty, would take seriously the admonition of Hayek, Buchanan, and Elinor Ostrom that the assumptions of omniscience and benevolence must be rejected if we are going to make progress and develop a robust theory of political economy. - Peter Boettke, AEA Richard T. Ely Lecture --- Raj Chetty, "Behavioral Economics and Public Policy"

AntiBullshitMan Partially Endorses Pragmatarianism!

I just found a really nice Easter Egg!  A couple months ago AntiBullshitMan posted a great video about pragmatarianism...





Here's my response...


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Audacious author here! heh. Not sure why it took me so long to discover this video!

I'd actually be THRILLED if we were given the freedom to allocate even as little as 1% of our taxes. I've mentioned this elsewhere... but not in the FAQ. The word "pragmatarianism" was in fact largely inspired by the pragmatic consequentialist Deng Xiaoping. He was all about gradualism. Millions of people were lifted out of poverty as a result of his gradual free-market reforms.

About the magic wand... noooooooo I wouldn't wave it! Watch "Milton Friedman on Libertarianism (Part 4 of 4)". The interviewer starts to ask him a hypothetical..."if you were dictator for a day" question and Friedman quickly interrupts him and says with great emphasis, "If we can't persuade the public that it's desirable to do these things, then we have no right to impose them even if we had the power to do it!" Friedman's response is priceless!

On the opposite spectrum is Murray Rothbard... "The abolitionist is a "button pusher" who would blister his thumb pushing a button that would abolish the State immediately, if such a button existed." Although, to be fair... unlike Friedman, Rothbard truly grasped the fundamental problem with government: a lack of consumer choice (individual valuation). Unfortunately, for some reason, he never publicly considered the idea of people choosing where their taxes go. His solution was to simply abolish the state. I decided that it was much safer to test the necessity of the state by allowing taxpayers to fund whichever parts of the state they felt were most necessary. Any parts of the state that were truly unnecessary would be defunded. Millions and millions of people spending their own money (aka a market) in the public sector, rather than one individual (ie Rothbard) or 500 individuals (ie congress), would determine the proper scope of the government.

Waving a wand or pushing a button to implement pragmatarianism would go against the very premise of pragmatarianism. Pragmatarianism is all about persuasion. As in, "if you want me to give more of my taxes to the DoD... then you're going to have to persuade me to do so." Solely relying on persuasion forces us to share our information... and this logically results in more information being processed. So maybe "persuasionism" would have been a better word? I suck at words.

Even though I'd be thrilled with 1% tax choice... I'm not quite sure how you'd determine whether the results were superior to the status quo. For example... even though we Americans have had the option to allocate $3 of our tax dollars to the presidential campaign fund... very few people choose to do so. How do we interpret these results?

Congress allocates $Y tax dollars to the presidential campaign fund
Consumers allocate $X tax dollars to the presidential campaign fund

Which answer is superior? Whose answer is more valuable?

In economics... the "optimal" answer is pretty straightforward. The optimal supply will perfectly match the demand. The conclusion (supply) follows from the premise (demand). Serving veggies to a vegetarian is optimal because the supply matches the demand. Serving meat to a vegetarian isn't optimal because there's a significant disparity between supply and demand.

So if we borrow from basic economics... then it would be pretty easy to determine whether the results are superior. By definition they would be superior! Except... if we already accept this definition... then gradualism isn't needed as a way to evaluate the results. We already know that the results would be superior. Of course... gradualism could be justified for plenty of other reasons!

Just like I didn't mention my support for even 1% tax choice in the FAQ... I also didn't mention my support for a global market for public goods. As in, taxpayers could shop in any country's public sector. As an American taxpayer... I would be free to shop in Canada's public sector. Would I even want to? Well... if the argument is that nobody would want to... then there's no reason to oppose it. If the argument is that every American is going to want to spend all their taxes in Canada's public sector... then I'd sure like to hear the reasoning! Maybe your Canadian public education is so good that it even made us Americans 500% smarter? Maybe your military is so powerful and wise that all the terrorists became florists? Maybe your healthcare is so good that it cured cancer and everything else? Maybe your environmental protection is so good that it cured global warming and brought back the Dodo bird from extinction? Maybe your space exploration is so good that we were able to visit other inhabited planets? Maybe your robotics research is so good that my best friend is a robot? I'm pretty sure that larger markets are better than smaller markets.

If we didn't have a global market for private goods... then you and I wouldn't be here trading with each other! Except... your video is actually a public good. So we do already sort of have a global market for public goods.... it's just not a very good one because taxpayers aren't free to spend their tax dollars on any of the public goods. We can't use our tax dollars to help bring valuable public goods to the attention of other taxpayers.

Thanks for the video! I really enjoyed it! I'd spend some tax dollars on it if I could! I'm going to share your video on my blog along with this response.

Limit Socialism To California

Reply to: You assume that political equality means one person, one vote.

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How, exactly, does a “Constitutional Republic with a limited government” negate the problems with giving unequally rational people equal influence over choosing our representatives? Our representatives are in charge of the constitution. So you’re essentially giving unequally rational people equal influence over the constitution.

I’ve read Ayn Rand… but I’ll admit that I haven’t thoroughly read her work. So it’s entirely possible that I’m missing something. That being said, I sincerely doubt that what I haven’t read will cancel out what I have read….

The proper functions of a government fall into three broad categories, all of them involving the issues of physical force and the protection of men’s rights: the police, to protect men from criminals — the armed services, to protect men from foreign invaders — the law courts, to settle disputes among men according to objective laws. — Ayn Rand, The Nature of Government

However you spin it… this is socialism. True… it’s limited socialism… but that doesn’t make it any less socialism. Elected representatives say, “We’re going to allocate more resources to defense and less resources to police and courts because doing so will better protect life, liberty and the pursuit of happiness”.

You argue that the visible hand should control X, Y and Z… but you also argue that the visible hand shouldn’t control A through W.

It’s like arguing that we should limit socialism to California. As if socialism somehow works in California but it doesn’t work in all the other states. As if the rules of economics are somehow different in California. Just like the rules of physics are somehow different in New York.

You and I both want the market to allocate A through W. But that’s not going to happen as long as you continue to argue that the market shouldn’t allocate X, Y and Z.

And if you believe that the market shouldn’t allocate X, Y and Z… then this means that you really don’t have a solid grasp on why the market should allocate A through W.

The benefit of consumer choice is that everybody wants the most bang for their buck. Consumers don’t choose to put their money into Friday’s hands. Why not? Because he can’t give them any pumpkins in return. Why not? Because he roasted and ate all his pumpkin seeds rather than save any to sow. Friday completely failed to consider other people’s interests… so of course consumers are not going to want him to have more influence over how society’s limited resources are used.

As a result of consumers striving to ensure that their hard-earned money isn’t wasted… society’s limited resources are placed in the most rational hands. And because people are unequally rational… the logical result of markets is that people are unequally influential. Some people have more influence than other people because some people earn more income than other people.

Earned influence is just as important in the public sector as it is in the private sector. Placing guns in the most rational hands is just as important as placing seeds in the most rational hands. Which is exactly why a market in the public sector is just as important as a market in the private sector.

You can benefit from this story of mine without paying for it. This is what makes it a public good. The question is… are you truly benefiting from this story? I don’t know. Why don’t I know? Because I’m not omniscient.

The fundamental and extremely unappreciated fact that people are not omniscient is just as relevant for public goods as it is for private goods. Believing otherwise is what makes libertarianism/objectivism logically absurd.

Look…

This is what Medium might look like if people truly appreciated the fact that nobody is omniscient.

If you benefited from a story… then you could communicate the size of your benefit to everybody simply by clicking on one of the *heart* buttons. Clicking on the 5 cent *heart* would instantly transfer 5 cents from your digital wallet to the creator’s digital wallet. Then, when people searched for stories and sorted the results by value, the creator’s story would show up 5 cents closer to the top of the results.

My girlfriend just told me that she’s upset that her organization’s directors want to fire the new Chief Operating Officer. Evidently my gf is a fan of the new COO. How many other employees are in the same boat? What would her organization look like if people truly appreciated the fact that nobody is omniscient?

The other day my gf was upset because a show that she enjoys on Netflix was canceled. What would Netflix look like if people truly appreciated the fact that nobody is omniscient?

Socialism is the idea that adequately good allocation decisions can be made without knowing the true demand.

Chris Edwards' Rothberror

Thanks to Arnold Kling, I learned of this excellent critique of government written by Chris Edwards.  Edwards' critique comprehensively covers the various causes of government failure.  Unfortunately, he concludes that the "only way" to fix the government is to greatly reduce its size and scope.  The only way?  The only way?  The only way?

Evidently Edwards hasn't read my blog.  That's disappointing... but understandable.  But it's less understandable that he missed this article by David Boaz... We should get to decide how the government spends our taxes.  Boaz and Edwards both work at Cato.  The topic never came up in a meeting?  Or over lunch?  Maybe Boaz never sent the memo... and if he did... Edwards missed it?

This entry will be my attempt to try and ensure that Edwards receives, and understands, the memo.  I'm hoping that in the future, at a bare minimum, he'll mention tax choice (pragmatarianism) in a footnote.

While reading his critique I copied a few key passages and pasted them into my database.  And now I'll go through my database and copy and paste some, or all, of his passages into this entry.  Starting with...

The driving force behind market economies is that voluntary exchanges are mutually beneficial. Millions of buyers and sellers pursuing their own interests engage in billions of exchanges, each creating value on both sides.  These transactions generate market prices, which help guide people and businesses toward the best use of their efforts and resources. The price system allows for the synchronization of vast amounts of production and consumption across the nation and around the globe.

This is good... but it's not great.  The vast majority of allocations that take place in the private sector really do not involve price tags.  Right now I'm allocating my limited time to writing this entry.  Is there a price tag involved?  Nope.  When I e-mail this entry to Edwards... will his decision whether to spend his time reading it be based on a price tag?  Nope.  If he does decide to read this entry... will his decision whether to spend his time replying to it be based on a price tag?  Nope.

What helps guide limited resources to their best uses is individual valuation of the opportunity costs.  For example... my second favorite liberal, John Quiggin, recently published this blog entry... Economics in Two Lessons: Income distribution.  I'd really like to write a reply to Quiggin's entry (X) but instead of doing so... here I am writing a reply to Edwards' critique (Y).

Based on my unique preferences/circumstances...

X < Y

X is the opportunity cost of Y.  I'm sacrificing X for Y.

The valuation of the alternative uses of our own limited resources is what ensures the efficient allocation of resources.

The driving force is the desire to choose the most valuable use of our limited resources.  The driving force is the desire to get the most bang for our buck.

And I'm pretty sure that Edwards grasps this.  Pretty sure.

Focusing on prices is advantageous because it's a concise and easy way to explain government failure.  The government fails because it doesn't have prices.  Voila!  Simple.  The problem is that the non-profit sector doesn't have prices either.  Like I said, the vast majority of allocations in the private sector don't involve prices.  So the disadvantage of relying on prices is that it distracts people from the real reason why the government fails.

With pragmatarianism... clearly there wouldn't be any prices in the public sector... but there would be taxpayer choice.  Earlier I used the term "individual valuation" but I think that "earner valuation" is a better term.  The term "earner valuation" implies ownership... which is a very important distinction.  It's one thing to valuate the uses of resources which you've earned... and another thing entirely to valuate the uses of resources which you haven't earned.

With libertarianism... even if the scope of government was reduced to defense, courts and police... these three extremely important and potentially dangerous public goods would not be subjected to earner valuation.  So the chances would be extremely good that we would continue to suffer from unnecessary wars, miscarried justice and police brutality.

The government does not work like this.  Rather than voluntary exchange, it generally relies on coercion to pursue its ends. One consequence is that we cannot be sure that government actions generate net value. Because the government’s activities are not based on mutually beneficial coordination, there is no sure source of information indicating whether or not they are useful. This is a fundamental weakness of government.

Libertarianism wouldn't solve this problem.  It would reduce the size and scope of the problem... at least temporarily... but like I mentioned... there would continue to be highly detrimental consequences of preventing earners from valuating defense, courts and police.

And, just how great can earner valuation truly be if it wouldn't improve defense, courts and police?  And, just how bad can non-earner valuation truly be if it can be trusted with defense, courts and police?

In making its spending and regulatory decisions, the government is flying blind. Regulations are top-down requirements for action or restraint, not efforts at finding voluntary agreement. Federal spending relies on compulsory taxation, not customer revenue. Without voluntary agreement behind its actions, the government faces a large information void. There is no system of supply and demand, prices, and profits to inform policymakers if their activities are generating net benefits to society. Policymakers may believe that their interventions make sense, but that is usually wishful thinking based on guesswork.

This is largely correct... but the argument really loses its punch when libertarians turn around and argue that this information void that government faces really isn't a problem when it comes to defense, courts and police.

In markets, individuals and businesses often make bad decisions. But if they continue down the wrong path, their resources get depleted.  A business making misguided investments will be punished by financial losses and may face bankruptcy or a takeover. About 10 percent of all U.S. companies go out of business each year, which is a remarkably high exit rate.  But losses and business failures prompt the beneficial reallocation of resources to more promising activities.

Excellent passage!  Producers make guesses wherever they are.  The fundamental difference is who gets to determine the accuracy of guesses.  In the private sector it's up to consumers to determine the accuracy of guesses.  In the public sector it's not up to consumers to determine the accuracy of guesses.

Does it matter whether or not consumers determine the accuracy of guesses?  I'm pretty sure that it does matter... and I'm pretty sure that defense, courts and police are not exceptions to this rule.

In sum, federal subsidies and regulations induce individuals and businesses to change their behaviors. Those changes undermine overall prosperity because resources are diverted from their best uses.

Yup!  And again, "best" use is a function of earner valuation.  So protecting defense, courts and police from earner valuation ensures that resources will be diverted from their best uses.

Garbage In, Garbage Out (GIGO) is just as applicable to economics as it is to computers.

In defense of federal policymakers, they have a difficult task. There are no clear cut metrics they can use to judge the success or failure of programs. The benefits are usually visible, but the costs are often unseen. In the marketplace, when consumers dislike products, sales and profits fall, which gives companies a strong signal to change course. There is no such built-in feedback for government programs.

Another excellent passage.  And again, reducing the scope of government to defense, courts and police really doesn't provide policymakers with a clear cut metric.  Which again begs the question of just how important a clear cut metric truly is.

Government intervention is not just an invisible job killer, it is an invisible knowledge killer. Market processes generate information about consumer needs, costs, production methods, and technologies, but intervention undermines those processes. When regulations block entrepreneurs from entering markets, we never learn what innovations they might have created. When taxes prevent companies from buying new machines, technological advance is slowed because new machines often incorporate new designs. When farmers receive subsidies, we lose improvements they might have discovered if they had faced the full rigor of the market. Hayek noted, “Freedom is important in order that all the different individuals can make full use of the particular circumstances of which only they know. We therefore never know what beneficial actions we prevent if we restrict their freedom to serve their fellows in whatever manner they wish.”

And another excellent passage.  But again, can facing the full rigor of the market truly be that great if libertarians want to prevent defense, courts and police from facing the full rigor of the market?  Defense contractors would still be subsidized... so why should we be concerned about farm subsidies?

Allowing taxpayers to choose where their taxes go would create a market in the public sector.  This market would clarify the demand for public goods.  Clarifying the demand for public goods would allow is to clearly see the breadth and depth of demand for public goods...

Seeing the demand breadth/depth for farm subsidies isn't nearly as important as seeing the demand breadth/depth for war...

In our economy today, markets guide billions of decisions based on fast-changing in formation across the globe. Prices, profits, and other market signals inform people about the adjustments they should make. Entrepreneurs try new strategies in millions of trial-and-error processes. Individuals and businesses sometimes fail, but they have strong incentives to get back on track. Markets are a process of ongoing change and discovery.

I agree that market signals are important... which is why I'm a pragmatarian rather than a libertarian.  Market signals are just as important for public goods as they are for private goods.   I'm a pragmatarian rather than an anarcho-capitalist because I believe that, when it comes to public goods, the free-rider problem distorts the accuracy of market signals.  But this distortion is easy enough to correct with taxation.  Once people are required to contribute to public goods then they have every incentive to accurately signal their preferences for public goods...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James Buchanan, The Economics of Earmarked Taxes

Buchanan published that paper in 1963.  Unfortunately, nearly everybody missed the memo.

In the marketplace, consumers have a strong incentive to examine products and make sure that they get a good deal. By contrast, people know that their individual votes in elections will have almost no effect on outcomes, and so they have little reason to research candidates and policies in detail. As a result, people tend to know more about, say, their favorite television shows than about the workings of the federal government.  It is logical for most people to be “rationally ignorant” about public policy, meaning that it does not pay for them to investigate the issues.  Opinion polls of Americans over the decades have found “appalling levels of ignorance” about federal policy, notes Schuck.

Do we truly benefit from the strong incentive that consumers have to try and get good deals?  If so, then wouldn't we want consumers examining defense and ensuring that they are getting a good deal?  Wouldn't we want them to be free to spend their taxes elsewhere if they decided that they weren't getting a good deal? 

Libertarianism would reduce the problem of rational ignorance... but it wouldn't eliminate it.  I think that we should eliminate, rather than reduce, rational ignorance... which is why I'm a pragmatarian.

Even in the crucial role of providing national defense, the pursuit of parochial advantage “has become a full-time preoccupation that permeates Congress’s activities and members’ decision making processes.”  That is the view of Winslow Wheeler in his book, The Wastrels of Defense. As a long-time congressional aide, Wheeler found that members responsible for national defense put most of their efforts into grabbing benefits for their states, rather than overseeing the Pentagon and ensuring the effectiveness of our armed forces. He argued that Congress has “degenerated into a gaggle of wastrels competing for selfish advantage.”

Reducing the scope of government to defense, courts and police wouldn't change this.

Also, because many voters remain ignorant about the details of policy, legislators have leeway to pursue their own private and ideological goals. The problem is that these other goals often produce failed policies as well. There is no built-in check—no invisible hand—to guide members to make value-added decisions, so their personal beliefs about policy may be untethered from reality.

The invisible hand still wouldn't be in the public sector if the government was limited to defense, courts and police.  We'd continue to suffer from the inevitable consequences of the visible hand supplying defense, courts and police.  Suffering from the visible hand is entirely unnecessary.  Replacing it with the invisible hand would be as easy as allowing taxpayers to choose where their taxes go.  Then the supply of all public goods would be tightly tethered to reality.  No longer would massive amounts of society's limited resources be allocated to tilting at windmills.

Congress proceeds with many failed policies because it does not confront direct cost benefit tradeoffs. In the marketplace, people compare a product’s cost to the expected benefits before they spend their money. Politicians do not face such a tradeoff. They are spending other people’s money, which nobody spends as carefully as his own.

This is certainly true.  It would also be true even if the government was downsized.  But it certainly wouldn't be true if taxpayers could choose where their taxes go.

Many federal programs deliver benefits to narrow groups but spread the costs widely across the population. Small groups of individuals and businesses are easier to organize than larger groups, and they have more focused goals, so they can be very effective in lobbying Congress for benefits.  The costs of narrow benefits—such as subsidies and regulatory advantages—are often diffused across tens of millions of taxpayers or consumers, often without the victims knowing that their pockets are being picked.

Concentrated benefits and dispersed costs would still be a problem with libertarianism.  But legal plunder really wouldn't be a problem with pragmatarianism.  The only possible way that your taxes could be spent on defense would be if you reached into your own pocket and spent your own taxes on defense.  Nobody else would be able to reach into your pocket in order to spend your taxes on defense.

If you're a pacifist then, with libertarianism, people would still be able to reach into your pocket and spend your money on defense.  This forced-rider problem would guarantee that the wrong amount of money would be spent on defense.  And I really don't want the wrong amount of money to be spent on defense... which is why I'm a pragmatarian rather than a libertarian.

Ideally, federal legislators would carefully evaluate programs by comparing the costs to the benefits, and they would do so in a manner transparent to the public. However, legislators have developed numerous techniques to hide the costs of federal spending. As a result, people perceive the “price” of government to be lower than it really is, and they demand too much of it. Economists call this bias “fiscal illusion.”

Fiscal illusion would still exist with libertarianism.  And as long as fiscal illusion exists... any fat that's trimmed from the government would quickly be replaced.  The only permanent solution would be to eliminate fiscal illusion entirely.  This could be accomplished by allowing taxpayers to choose where their taxes go.  Pragmatarianism would guarantee fiscal equivalence.

The use of fiscal illusion is a contributing factor to government failure. By partly hiding the burden of government, policymakers are emboldened to pursue ill-advised programs that have higher costs than benefits. Citizens and voters are left in the dark, not recognizing that the costs of all the benefits pouring forth from Washington are higher than they seem.

With libertarianism... citizens and voters would still be left in the dark.  They wouldn't be able to recognize the true costs of defense, courts and police.  And if the public fails to understand the true costs of these public goods... then it's a given that they will want the government to supply more public goods.

With pragmatarianism, on the other hand, taxpayers would fully recognize and bear the costs of everything that the government does.  And when it comes to something like war... we really want taxpayers to fully bear the costs.

The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. - Adam Smith, Wealth of Nations

This is the most important memo.  Most citizens have not gotten this memo.  And they won't get this memo until libertarians fully accept and recognize the fact that fiscal illusion causes the most harm when it's applied to defense/offense.

The best libertarians stand shoulder to shoulder with Adam Smith.  But in order to truly make progress... you have to stand on his shoulders.  That's what being a pragmatarian is all about.

Poorly performing agencies do not go bankrupt, so there is no built-in mechanism to end low-value activities. There is no automatic corrective to programs that have rising costs and falling quality. In the private sector, businesses abandon activities that no longer make sense, but “the moment government undertakes anything, it becomes entrenched and permanent,” noted management expert Peter Drucker.  In government, resources remain stuck in obsolete activities, rather than being reallocated to better uses. Drucker said that “the strongest argument for private enterprise” over government is not the role of profits, but the role of losses.  Losses send a powerful signal to businesses that they need to make changes. Failing government programs do not send such a signal.

There wouldn't be any profits if we created a market in the public sector... but there would certainly be losses.  The least beneficial government organizations (GOs) would lose revenue.  They would either improve their performance or go bankrupt.

See... the fundamental question is... what should the government do?  There are two ways to answer this question...

1. The market
2. The not-market

If we created a market in the public sector... then the invisible hand would determine the size and scope of government.  This answer would reflect the maximum amount of dispersed information.  It would reflect the diverse preferences and circumstances of millions and millions of individuals.

If we didn't create a market in the public sector... then the visible hand would determine the size and scope of government.  This answer would not reflect the maximum amount of dispersed information.  It would not  reflect the diverse preferences and circumstances of millions and millions of individuals.

Which answer would be the most valuable?  The answer provided by the not-market (libertarianism)?  Or the answer provided by the market (pragmatarianism)?

Congress does not have the time or expertise to allocate resources efficiently in all these areas. Members are spread too thin, which is evident from the fact that they routinely miss all or parts of congressional hearings.  Congress grabs for itself vast powers over nonfederal activities, but then members do not have the time to properly monitor how their interventions are actually working.

Eh...no.  It might be argued that the pyramids were efficiently constructed.  This argument would imply that costs were somehow minimized.  But it can't be argued that the pyramids represent an efficient allocation of Egypt's limited resources.  This is because allocative efficiency depends entirely on the preferences/priorities of the people whose resources were allocated.  If Egyptian taxpayers had been free to directly allocate their taxes... and they allocated their taxes to building the pyramids... then, and only then, could we say that the pyramids represent an efficient allocation of society's limited resources.

In the absence of a market in the public sector... limiting the scope of government might allow congress to help ensure that the DoD is more effective/efficient... but the allocative efficiency of a war depends entirely on how well it matches the true preferences of every individual in society.  And the true preferences of every individual can only be known by their spending decisions.

With a libertarian government... congress might help ensure that we saved a trillion dollars on a war against Canada.  But if taxpayers wouldn't have spent their taxes on this war in the first place... then it's a monumental case of missing-the-point to argue that we saved $1 trillion dollars on a $10 trillion dollar war that there was virtually no demand for.

My guess is that Edwards is trying to come up with some explanation as to how congress would improve its decisions if it had less on its plate.  But no amount of reduction in congressional responsibilities or duties would make congress omniscient.  Someone would have to have a very tenuous grasp of reality to assume omniscience on the part of planners...

I shall present a pseudo-demand analysis that would provide an omniscient planner with one method of solving the optimality equations of the original model. - Paul Samuelson, Pure Theory of Public Expenditure and Taxation

Reducing the size/scope of government really wouldn't improve the efficiency of congress's allocations.

While legislators are overwhelmed by the size and scope of the government, the bureaucracy has also become unmanageable. Paul Light thinks that one reason for the increase in failures is the “ever-thickening hierarchy” of departments.  He says that “communication continues to be a major source of failure, in part because information has to flow up through multiple layers to reach the top of an agency.”  President Obama’s frequent appointment of “czars” partly reflects the recognition that the traditional bureaucracy is not working.

Information flow is necessary to the proper function of any organization.  But a properly functioning bureaucracy is only beneficial when the organization is supplying something that's truly demanded.  And it's only when dissatisfied consumers have the option of easy exit that bureaucracies have any incentive to improve.  Reducing the scope of government to defense, courts and police really wouldn't provide taxpayers with easy exit.

In sum, political and bureaucratic incentives and the huge size of the federal government are causing endemic failure. The causes of federal failure are deeply structural, and they will not be solved by appointing more competent officials or putting a different party in charge. Americans are deeply unhappy with the way that Washington works, and everyone agrees that we need better governance. The only way to achieve it is to greatly cut the federal government’s size and scope.

The only way?

The problem with libertarianism should be painfully clear.  It severely undermines its strongest economic arguments by applying them inconsistently.  The result is an incoherent case for freedom.

Rational ignorance is a problem?  Yes... except when it comes to defense, courts and police.

An information void is a problem ? Yes... except when it comes to defense, courts and police.

The lack of incentives is a problem?  Yes... except when it comes to defense, courts and police.

The lack of losses is a problem?  Yes... except when it comes to defense, courts and police.

Spending other people's money is a problem?  Yes... except when it comes to defense, courts and police.

The lack of a clear cut metric is a problem?  Yes... except when it comes to defense, courts and police.

Legal plunder is a problem?  Yes... except when it comes to defense, courts and police.

Fiscal illusion is a problem?  Yes... except when it comes to defense, courts and police.

The absence of consumer choice is a problem?  Yes... except when it comes to defense, courts and police.

The visible hand is a problem?  Yes... except when it comes to defense, courts and police.

From my perspective... all these real and significant problems are equally applicable to defense, courts and police.  Add the free-rider problem to the list of real and significant problems and you'll have most of the reasons why I'm a pragmatarian.

For sure I'd love it Edwards converted to pragmatarianism.  But at a bare minimum I hope that, in the future, he'll acknowledge that libertarianism really isn't the "only way" to try and improve government.  Decades ago Buchanan pointed out that there's another way.  And it's wonderful that Boaz has more than recognized the existence of this alternative.  It would be great if more libertarians followed his lead... but even just acknowledging the existence of tax choice would be a significant improvement.


See also: John Quiggin And David Boaz Fusion Food For Thought 

Rescuing Robin Hanson From Unmet Demand

Robin Hanson has a BIG problem.  He wants to read books that nobody's writing!

Industry-Era Action Stories

Let me tell him something...

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You're in a boat, surely you aren't the only one.  I'd definitely read a book or watch a movie, or two, or three...or a few shows...about the first few foreign firms to make significant profits in China after my hero Deng Xiaoping opened the doors.

The challenge here is that it's kinda difficult to know exactly how many other people are in the same boat.  We can't buy a product that doesn't exist!

But what if people could choose where their taxes go?  Let's pretend that there was a department of books (DoB).  Because good books are a public good...right?  Surely they have all sorts of positive externalities.  Especially the types that don't require the murder of trees.  Digital books sure aren't rivalrous.

Taxpayers could give the DoB some of their taxes and the DoB would use the money to pay authors to write books that everybody could read for freeeeeeeee!

Of course taxpayers wouldn't all want to sponsor/read the same books.  So when you went to the DoB website to make a tax payment, you could check mark which types of books that you'd want your money to be spent on.  

You, me, and all the other cool kids would check mark "builderism".  And voila!  Pretty soon our digital libraries would be jam packed with exciting and educational stories about where better options come from.  Movies and shows would surely follow.

What would stop the DoB from spending our money on teen vampire novels?  Well...nothing.  Except for the fact that we probably wouldn't give the DoB any more of our taxes if it did so.

In the movie Field of Dreams the motto was, "if you build it they will come".  With pragmatarianism the motto would be, "if you fund it they will write/build/make/produce/supply it".

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While writing this I had the vaguest recollection that I'd written something kinda similar to David Friedman.  So I searched for unmet site:daviddfriedman.blogspot.com and found my comment on this post of his...

The Killer App for Google Glass

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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?

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It would also be nice to have an app that allowed us to talk with our pets.

Perhaps this is the best passage for clarifying demand...

There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson 

It's easy enough to give them a "lobby".  Jack Haldeman shared the solution in his short science fiction story..."We the People".

I suppose that it wouldn't be impossible to create a site kinda like patreon.com that allowed members to sponsor specific types of content that they'd like to see created.  But it's a bit of a buzzkill to make the content excludable in order to avoid the free-rider problem.    

Economically Consistent Libertarianism

Some pretty decent comments here... What Should The Government Do?

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Most of you libertarians probably already have a decent idea what the government should do...and chances are good that it's not a very long list.

The thing is...I think that there might be a problem with how you came up with your list.  In order to show you the problem...let's tweak the question a bit...

What should the private sector do?

How do we determine the proper scope of the private sector?  Easy!  We shop.  Right?  Each time we spend our money on a good/service... we help determine what the private sector does.  As a result, the scope of the private sector accurately reflects the complex preferences and circumstances of consumers.  It's a bottom up...decentralized...invisible hand approach.  Because it's the epitome of a group valuation effort...the private sector creates the maximum possible value.

With this in mind...how do we determine the proper scope of the public sector?

A. We strictly adhere to the Constitution
B. We elect Rand Paul
C. We shop
D. Other

A. The Constitution was written by a small group of government planners.  If a top down approach can more accurately determine what the public sector should do...then it can more accurately determine what the private sector should do.  This is because "accuracy" is value.  More accuracy equals more value.  If the top down approach for the public sector creates more value than the bottom up approach would...then clearly the value judgements of a small group of government planners are superior to the value judgements of millions and millions of consumers.  Therefore, we should want congress to be our personal shoppers in the private sector as well.

B.  Rand Paul is pretty great...but if he determines the proper scope of government...then it's still a top down approach.

C. We shop (pragmatarianism).  Each time we spend our own taxes on a good/service... we will help determine what the public sector does.  This is the bottom up approach.

D. Other?  If it's not bottom up...then it's top down.  If it's not decentralized...then it's centralized.  If it's not the invisible hand...then it's the visible hand.  If you're not dancing to the beat of your own drum...then you're dancing to the beat of somebody else's drum.  If you're not determining which items are being placed in your shopping cart...then somebody else is.


Can government planners know that limiting the public sector to the production of x, y and z will create the maximum possible value?  If so, then why do you want to reduce the scope of government?  Clearly you believe that the value judgements of millions and millions of consumers are inferior to the value judgements of a small group of government planners.

Pragmatarianism is economically consistent libertarianism.

Constitutionalism Equals Socialism

Constitutionalism = a committee determines the scope of government = Socialism = Conceit

versus

Pragmatarianism = taxpayers determine the scope of government = Tax choice = Humility

We all make mistakes.  It's conceited for people to think that they are infallible.  The more conceited that somebody is...the more eggs that they are willing to put in one basket...the greater the consequences of their mistakes.  Therefore...

Scarcity + Fallibilism = Hedge Our Bets = Tax Choice

In other words...

It follows, then, that a less centralized society has the advantage of a greater diversification of its performance across a larger number of preceptors.  This is because diversification here dilutes the impact of the ability, or the lack thereof, of each preceptor on the aggregate societal performance. - Raaj K. Sah, Fallibility in Human Organizations and Political Systems

Is There a Platypus Controlling You?

Over on the Ron Paul forums I started this thread...Is Christmas Coercion?  My goal in starting the thread was to try and imagine the resource allocation disparity between a world with and without Christmas...in order to help try and imagine what the resource allocation disparity might be between pragmatarianism and anarcho-capitalism.

Nearly everybody who responded to the thread completely missed my point and instead tried to refute any possible coercive element of Christmas.  Most of the comments were fairly predictable...except for the comments by wistfulthinker.  His comments were extremely exceptional.  In my opinion it is well worth it to sign up to the Ron Paul forums just to read his comments.  You might not agree with his content...but personally it was like receiving a totally unexpected but very enjoyably ironic gift.  It helps to read the entire thread to fully appreciate the irony.

Everybody is coerced/controlled by something/someone to some degree...right?  Personally...I wish I didn't have to eat or sleep.  But there are plenty of people that take great joy in eating and sleeping.

How many times in our life have we been coerced into doing something good?  How many times in our life have we been coerced into doing something bad?  "Peer pressure" generally has a negative connotation but traditions are nothing more than peer pressure amplified into social pressure.  There's incredible pressure to conform...people who fail to conform in a bad way are considered deviants while people who fail to conform in a good way are considered nonconformists.  Whether somebody is a deviant or nonconformist is subjective and relative though.

When it comes to the scope/responsibilities of government ...are you a deviant...or a conformist...or a nonconformist?  Here's a bell curve diagram that represents society's views on what the government should or shouldn't do...

There's a continuum that ranges from people that believe the government should do everything (socialists) all the way to people that believe that the government shouldn't do anything (anarcho-capitalists).  In between are liberals and libertarians.  If you scroll down my entry on libertarianism you'll find a timeline of the perspectives of prominent libertarians on the proper scope of government.

Another way of thinking about the political ideology continuum is to organize the various ideologies based on their views on how pervasive the free-rider problem is...The Blind Men and the Scope of Government.

Do we really need the government to act like our parents?  What type of parenting style should the government adhere to?  Authoritarian parenting style...soft-paternalism parenting style...maternal parenting style...permissive parenting style?

It's entirely possible that anarcho-capitalists are correct that as a society we're grown up enough to stand on our own two feet.  But can we ever truly know whether somebody is responsible enough to stand on their own two feet without completely withdrawing our support?

The kicker is that we know exactly how grown up we truly are as a society.  The challenge is to understand that the answer is collectively known.  The sum of our individual answers is the true answer.  To arrive at the true answer we need to integrate our perspectives.

How can we integrate our perspectives?  By allowing taxpayers to directly allocate their taxes.  This will allow taxpayers to use their taxes to highlight the areas where we still have some growing up to do.  Their tax allocation decisions will address the shortcomings of the private sector...AND...the shortcomings of the public sector.

Control is a very serious matter...but I strive not to take myself too seriously.  With that in mind...






Vanessa: Dad?
Heinz Doofenshmirtz: Oh, hi, Vanessa!
Vanessa: Dad, what are you doing?
Heinz Doofenshmirtz: Well I'll be honest I don't really understand
But I fell down this hill and I got glue on my hands
Now I got records on my fingers
Kids: Whaaaat?
Heinz Doofenshmirtz: Records on my fingers
I got records on my fingers and I just can't stop
Kids: Don't stop
Heinz Doofenshmirtz: I can't stop I got a platypus controlling me
Kids: WHAAAAT?
Heinz Doofenshmirtz: I got a platypus controlling me
Now let me sum it up
It was a strange set of circumstances
Kids: Strange set of circumstances?
Heinz Doofenshmirtz: I fell down the hill, I got glue on my hands now I got records on my fingers
And I just can't stop
Kids: DON'T STOP DON'T STOP
Heinz Doofenshmirtz: Well I would if I was able
there's a platypus controlling me he's underneath the table
Kids: There's a platypus controlling him—WHAAAT?
Kid: Oh I get it, platypus is a metaphor for whatever is keeping you down
Kids: Corporations are a platypus
The government's a platypus
Your teacher is a platypus
Weird Kid: My teacher is a panda
Kids: Society's a platypus
My parents are a platypus
The media's a platypus
It's all just propaganda
We've all got platypus controlling us
Heinz Doofenshmirtz: No just me
Kids: We've all got platypus controlling us
Heinz Doofenshmirtz: I'd stop if I was able
Kids: We've all got platypus controlling us
Heinz Doofenshmirtz: I'm not speaking metaphorically
the platypus controlling me is underneath the table
Oh wait, no, he's gone!
Heyyy! There's no platypus controlling me...
There's no platypus controlling me!

The Blind Men and the Scope of Government

We all want adequate levels of the goods that we value...right? The problem is that there are some goods, known as "public goods", that people can benefit from without paying for. This problem is known as the free-rider problem.

In order to deal with the free-rider problem we force people to pay taxes and allow the government to produce these public goods. The challenge is that we do not value all public goods equally. What might be a public good for one person might not be a public good for another person. In order to try and decrease the tax rate many people are inclined to argue that the free-rider problem does not apply to public goods that they do not value.

The main political ideologies can be roughly organized based on their perceptions of how pervasive the free-rider problem actually is...

• Socialists: the free-rider problem applies to all goods
• Liberals: the free-rider problem applies to many goods
• Libertarians: the free-rider problem applies to few goods
• Anarcho-capitalists: the free-rider problem does not apply to any goods

How can we figure out who is correct? How can we determine what goods, if any, the government should be responsible for providing? If the private sector can produce adequate levels of a public good then wouldn't it be redundant/wasteful for the public sector to also produce that same good? Redundancy, or the misdirection, of public funds can also be thought of as the inefficient allocation of public funds.

In order to discern the actual scope of government we should allow taxpayers to directly allocate their taxes to "essential" government organizations. An "essential" government organization is one that provides important public goods that the private sector either partially or completely fails, because of the free-rider problem, to provide. Allowing taxpayers to directly allocate their taxes is known as pragmatarianism.

The biggest challenge to pragmatarianism is that people do not understand how the invisible hand works. People instinctively get the feeling that "important" public goods would be underfunded and "less important" public goods would be overfunded. The thing is...in a pragmatarian system taxpayers would still have the option to give all their taxes to congress. If congress was efficiently allocating taxes...then why would any taxpayers choose to directly allocate their taxes themselves?

The fundamental concept to try and understand is that the only way we can accurately determine the "importance" or "value" of a public good is by seeing how much funding it would receive relative to other public goods. This is known as the "opportunity cost" concept. This concept is simply the idea that you can't have your cake and eat it too. Deciding whether you eat or have your cake reflects your true values. The problem with the current system is that voters can convey their opinions...but taxpayers are unable to convey their true values. In a pragmatarian system voters would determine the functions of government and taxpayers would determine which functions they funded. In essence...by allowing people to put their money where their mouths are...we can determine the best possible use of public funds.

What if you disagree with pragmatarianism? Then please explain what basis you have for believing that congress can efficiently allocate taxes. As far as I can tell...the current system is based on nothing but tradition. Nearly 1000 years ago some Barons were not happy with how the king was spending their money so they forced him to relinquish the "power of the purse". That's the cliff notes version but there is no logical or rational basis for believing that 535 people can efficiently allocate the taxes of millions and millions of taxpayers. Parliament did not have to interview for this position. They did not end up with this position because they were uniquely qualified. All they had to do to get this position was to take it by force from the king. That's it. Just because they stole control of taxes from a king does not make their control over taxes any more legitimate than the king's control of taxes was. Why did the king have control over taxes in the first place? Because people believed he had "divine authority". In the past 1000 years we've learned a bit more about how scarce resources are efficiently allocated.

Hayek's concept of partial knowledge ties into Bastiat's concept of opportunity cost which ties into Smith's concept of the invisible hand...which ties all the way back to Buddha's explanation of how we are all just blind men touching different parts of an elephant. The true scope of government can only be revealed by adding all our limited perspectives together.

It's great if you want to argue against pragmatarianism...but please help me understand why you believe that congress is better qualified to efficiently allocate taxes.

Political Ideology Diagrams

Here are a few diagrams I created to help illustrate that tenets can be used to help define where one political ideology ends and another political ideology begins.

The first political ideology Venn diagram depicts shared tenets while the second and third bell curve, public goods spectrum diagrams depict the scope of government.

The scope of government* should be determined by allowing taxpayers to directly allocate their individual taxes among the various government organizations.  For example, at anytime throughout the year you could visit the Environmental Protection Agency website and directly submit a tax payment.  This is known as pragmatarianism and/or tax choice.

Liberals believe that the government should do a lot more (have a broader scope) while conservatives and libertarians believe that the government should do a lot less (have a narrower scope).  In a tax choice system, if the Red Cross is more effective and efficient than FEMA then people who value disaster relief might not allocate any of their taxes to FEMA. This would narrow the scope of government.  Conversely, because private healthcare is so expensive perhaps more and more taxpayers might allocate their taxes to public healthcare.  The amount of money that public healthcare received would determine what percentage of the population qualified for coverage.  This would broaden the scope of government.  Allowing for a division of labor between taxpayers would reveal the proper scope of government.

One significant problem with the current system is that without allowing taxpayers to consider the opportunity costs of their taxes then there's no way for the government to know how to prioritize spending.  Somebody can say that they value defense, public healthcare, infrastructure, etc but the only way to accurately determine exactly how much they truly value infrastructure is by giving them the freedom to choose how much defense and public healthcare they would be willing to forgo in order to pay for more infrastructure.  Tax choice allows taxpayers to reveal their preferences which is the only way that public funds can be efficiently distributed among the various government organizations.

Pragmatarianism also solves the problem of government inefficiency.  Organizations in the private sector are forced to operate efficiently or they either lose customers (in the case of businesses) or they lose donors (in the case of non-profits).  Government organizations currently receive the same amount of money irrespective of how well they use it.  Without a strong incentive to operate efficiently they have become extremely inefficient.  With pragmatarianism, taxpayers would not willingly give their taxes to a government organization that would just waste their money.

*For a highly entertaining yet very informative historical perspective on the scope of government please see Herbert Spencer's comment at the end of my post on Absurdity-Spotting.

Here is the political ideology Venn diagram.  This diagram helps illustrate that libertarian socialism can more accurately be thought of as anarcho-socialism.

Here is the public goods spectrum / scope of government bell curve diagram.  On the far left the government would provide all the goods (socialism) and on the far right the market would provide all the goods (anarcho-capitalism).  As I mentioned above, allowing for a division of labor between taxpayers would reveal the ideal division of labor between the public and private sectors.  

Here is the same public goods spectrum / scope of government bell curve diagram.  The difference is that it depicts the liberal spectrum.  

Thanks to karmaisking for his suggestion to include control of money/banks on the diagrams!