Thursday, July 27, 2017

Murray Rothbard VS James Buchanan

Earlier today Adam Gurri and I had an extended exchange on Twitter.  What set it off was when he shared this article by Paul Crider...  Beyond the Freedom of the Void.  The article blurred the lines between positive liberty and negative liberty.  Perhaps Crider made a valid point, but I didn't quite see what difference it would make.  Gurri responded that it would help people resist anarcho-capitalism (AC).  We went back and forth for a while and eventually ended up here...



Oh deja vu.  In a recent post I shared this blog entry by Matt Bruenig... #NotAllLibertarians: An Illustration.  He defended his wife's attack on Rothbard's argument that parents should not be forced to feed their children.  I left this comment on his entry...

If you're going to go after Rothbard.... then it's probably a good idea to attack his strongest argument... Football Fans vs Nature Fans... rather than his weakest one. Because, if you don't attack his strongest argument... then it appears that you're incapable of doing so.

It's true that a chain is only as strong as its weakest link.  It's also true that an argument is only as strong as its weakest link.  However, it's important to understand that Rothbard's deontological arguments ("rights") and consequential arguments (results) are entirely different chains.  Destroying an argument in the "rights" chain really doesn't destroy the results chain.  If it did, then the results chains created by Ostrom and Buchanan would also be destroyed.

Is Bruenig familiar with Rothbard's results chain?  I'm not sure.  It's not like he responded to my comment.  Gurri, on the other hand, did respond to my comment.  So I know for a fact that he has not read either "Toward a Reconstruction of Utility and Welfare Economics" (1956) or "The Myth of Neutral Taxation" (1981).  He is under the impression that he doesn't need to read them because Rothbard's crappy "rights" argument is all he needs to know to make an adequately informed decision about Rothbard and AC.

Personally, my first impression of AC and Rothbard was super negative.  I detested him.  But I perfectly understood that the only way to beat him and his followers was to truly understand him.  So I took the time and made the effort to familiarize myself with his work.  Much of it was garbage "rights" arguments, but there were also some solid results arguments here and there.  By the time that I read his two papers that I mentioned earlier, I had come to the conclusion that he had correctly diagnosed the government.  His remedy though was to abolish the government.  It was quite drastic.  Effectively evaluating his drastic remedy depends on fully understanding the disease.

In 1954 the Nobel economist Paul Samuelson wrote a really short paper... "The Pure Theory of Public Expenditure".  He pointed out that it's possible to benefit from some goods without paying for them.  For example, you can benefit from environmental protection (EP) even if you don't help pay for it.  Why buy the cow when you can get the milk for free?  The problem is... if you, and too many other people, don't pay for EP, then not enough will be supplied.  The amount supplied will be less than the amount that everybody truly wants.   So we can't expect people to voluntarily donate enough money to EP.  Therefore... taxes.  You don't have a choice whether you pay for goods like EP.  Paying taxes though doesn't reveal your valuation of EP. What Samuelson did was simply assume that planners would be able to adequately guess your true valuation of EP.

The Nobel economist James Buchanan agreed with Samuelson that the free-rider problem reasonably justifies taxation.  But as far as Samuelson's assumption of omniscient planners was concerned, Buchanan strongly disagreed.  In 1963 he wrote "The Economics of Earmarked Taxes".  He argued that earmarking would allow taxpayers to honestly reveal their true valuations of public goods.  Say that your valuation of EP is $1000 of your tax dollars.  If you only earmark $100 tax dollars to EP it doesn't mean that you'll be able to spend the difference on private goods (ie clothes).  It means that you'll have $900 tax dollars to earmark to other public goods (ie national defense)... which you value less than EP.  Therefore, there's absolutely no incentive to give a false signal.

In his 1956 paper Rothbard wrote, "Individual valuation is the keystone of economic theory."  This is entirely consistent with Buchanan.  Both thinkers strongly agreed that it's absurd to assume that planners can correctly divine or adequately predict people's valuations.  Also from Rothbard's paper...

The prime error here is the assumption that the preference scale remains constant over time. There is no reason whatsoever for making any such assumption. All we can say is that an action, at a specific point in time, reveals part of a man’s preference scale at that time. There is no warrant for assuming that it remains constant from one point of time to another. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

We can compare it to Buchanan in 1982...

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

Rothbard thoroughly understood that valuations can't be adequately/accurately conveyed by surveys/voting...

One of the most absurd procedures based on a constancy assumption has been the attempt to arrive at a consumer’s preference scale . . . Through quizzing him by questionnaires.  In vacuo, a few consumers are questioned at length on which abstract bundle of hypothetical commodities they would prefer to another abstract bundle, etc. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people. Not only will a person’s valuations differ when talking about them than when he is actually choosing, but there is also no guarantee that he is telling the truth. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

Buchanan obviously agreed.  He certainly never said, "Planners aren't omniscient, therefore voting."  No economist in their right mind would argue that the optimal supply of defense can be determined by direct democracy.  Otherwise they'd have to argue that the optimal supply of milk can also be determined by direct democracy.

In the absence of people's valuations of government goods, many people will end up paying a lot of money for goods that they really don't value.  Here's Rothbard in 1981...

But this argument generates far more difficulties than it solves. It proves too much in many directions. In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation

Here's Buchanan in 1968...

Over time, any individual in the community will expect this rule to produce unfavorable results in particular instances, results that run counter to his own preferences. Public-goods projects which he urgently desires may not be undertaken because a majority of his fellow citizens does not agree with his evaluation. Or, conversely, he may be required to contribute to the costs of projects that he considers to be worthless. - James Buchanan, The Demand and Supply of Public Goods

Buchanan and Rothbard both agreed that the forced-rider problem is a real problem.  They also agreed that fiscal illusion is a real problem.  Here's Rothbard in 1981...

A second important point is that, in contrast to the market, where consumers pay for received benefits (or, in nonprofit organizations, where members pay for psychic benefits), the State, like the robber, creates a total disjunction between benefit and payment. The taxpayer pays; the benefits are received, first and foremost, by the government itself, and secondarily, by those who receive the largess of government expenditures. - Murray Rothbard, The Myth of Neutral Taxation

Here's Buchanan in 1967...

The apparent splitting of the fiscal process into two parts was shown to produce potential gaps between preferred spending on public goods and services and preferred levels of taxation. Until and unless these gaps are eliminated, budget deficits tend to emerge from democratic decision processes. - James Buchanan, "Fiscal Policy" and Fiscal Choice

Let's compare their thoughts on congestion.  Here's Rothbard in 1974...

If there is an increased demand for a privately-owned good, consumers pay more for the product, and investors invest more in its supply, thus "clearing the market" to everyone's satisfaction. If there is an increased demand for a publicly-owned good (water, streets, subway, and so on), all we hear is annoyance at the consumer for wasting precious resources, coupled with annoyance at the taxpayer for balking at a higher tax load. Private enterprise makes it its business to court the consumer and to satisfy his most urgent demands; government agencies denounce the consumer as a troublesome user of their resources. Only a government, for example, would look fondly upon the prohibition of private cars as a "solution" for the problem of congested streets. Government's numerous "free" services, moreover, create permanent excess demand over supply and therefore permanent "shortages" of the product. - Murray Rothbard, The Fallacy of the 'Public Sector'

Here's Buchanan in 1955...

The answer to the whole highway problem lies in “pricing” the highway correctly. The existence of congestion on our streets and highways is solely due to the fact that we do not charge high enough “prices” for their use. This is one of the main functions of price in our free enterprise economy… [p]rice relieves potential congestion around our meat counters, our motels, and our models. Why do we shun its usage in the case of highway services?  - James Buchanan, Painless Pavements: Highways by High Finance

Rothbard and Buchanan agreed on many things.... individual valuation, prices, fiscal equivalence and the forced-rider problem.  They both understood the point and purpose of markets so it shouldn't be a surprise that they both came to the same correct conclusion that the fundamental problem with government is that it isn't a market.  The solution to this problem is where the two thinkers diverged.  Rothbard's solution was to abolish the government while Buchanan's was to repair it.  Here's Rothbard in 1974...

Government, in short, acquiring its revenue by coerced confiscation rather than by voluntary investment and consumption, is not and cannot be run like a business. Its inherent gross inefficiencies, the impossibility for it to clear the market, will insure its being a mare's nest of trouble on the economic scene. - Murray Rothbard, The Fallacy of the 'Public Sector'

As far as I know, this is the closest he came to critiquing the idea of repairing the government.

Ok, now let's jump over to Vincent Ostrom and Elinor Ostrom.  Here they are in 1971...

PPB analysis rests upon much the same theoretical grounds as the traditional theory of public administration. The PPB analyst is essentially taking the methodological perspective of an "omniscient observer" or a "benevolent despot." Assuming that he knows the "will of the state," the PPB analyst selects a program for the efficient utilization of resources (i.e., men and material) in the accomplishment of those purposes. As Senator McClelland has correctly perceived, the assumption of omniscience may not hold; and, as a consequence, PPB analysis may involve radical errors and generate gross inefficiencies. - Vincent Ostrom and Elinor Ostrom, Public Choice: A Different Approach to the Study of Public Administration

No surprise, they agree with Rothbard and Buchanan that it's a problem to assume that government planners are omniscient.

Here's what the Ostroms wrote in 1999 about individual valuation...

Whereas the income received for providing a private good conveys information about the demand for that good, taxes collected under the threat of coercion say little about the demand for a public good or service.  Payment of taxes indicates only that taxpayers prefer paying taxes to going to jail.  Little or no information is revealed about user preferences for goods procured with tax-supported expenditures.  As a consequence, the organization of collective consumption units will need to create alternative mechanisms to prices for articulating and aggregating demands into collective choices reflecting individuals' preferences for a quantity and/or quality of public goods or services. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Let's compare it to Rothbard in 1981...

We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. - Murray Rothbard, The Myth of Neutral Taxation

Also...

Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange."   Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation. - Murray Rothbard, The Myth of Neutral Taxation

The Ostroms also agreed with Rothbard and Buchanan that fiscal illusion is a problem.  Here the Ostroms are in 1999....

The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy.  Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits.  Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy.  Costs must be proportioned to benefits if people are to have any sense of economic reality.  Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money.  When this happens the foundations of a democratic society are threatened.  The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Here's Elinor Ostrom in 2005...

There are two principle means to assess equity: (1) on the basis of the equality between individuals' contributions to an effort and the benefits they derive and (2) on the basis of differential abilities to pay.  The concept of equity that underlies an exchange economy holds that those who benefit from a service should bear the burden of financing that service.  Perceptions of fiscal equivalence or a lack thereof can affect the willingness of individuals to contribute toward the development and maintenance of resource systems. - Elinor Ostrom, Understanding Institutional Diversity

Rothbard, the Ostroms and Buchanan would perfectly agree...

1. The efficient allocation of resources depends on everyone's valuations
2. Neither taxation nor voting adequately/accurately reveals people's valuations
3. Government planners can't adequately/accurately divine or predict people's valuations

These three things mean that the government won't optimally supply any goods.  Here are the Ostroms in 1999...

Because most public goods and services are financed through a process of taxation involving no choice, optimal levels of expenditure are difficult to establish. The provision of public goods can be easily over-financed or under-financed. Public officials and professionals may have higher preferences for some public goods than the citizens they serve. Thus they may allocate more tax monies to these services than the citizens being served would allocate if they had an effective voice in the process. Under-financing can occur where many of the beneficiaries of a public good are not included in the collective consumption units financing the good. Thus they do not help to finance the provision of that good even though they would be willing to help pay their fair share. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

We can see exactly where the Ostroms converge with Buchanan and diverge from Rothbard.  Rothbard was certain that the only way to give citizens an effective voice was to abolish the government.

Rothbard allocated a lot of time and intelligence to trying to abolish the government.  What if he had redirected his limited resources to trying to repair the government?  What if he had thrown the full weight of his support behind the solution offered by Buchanan and the Ostroms?

In any case, it should be really straightforward that it's stupid for Bruenig, Gurri and anybody else to attack Rothbard's weakest argument.  They should attack his strongest arguments.

On Twitter, Gurri has been sharing many critiques of Nancy MacLean's book Democracy In Chains.  In her book she attacks Buchanan.  But does she attack his strongest arguments?  No.  Unfortunately she doesn't.  Instead she attacks things like his association with the Koch brothers.  I certainly appreciate that she chose to attack Buchanan, but it would have been far more beneficial if she had actually attacked his strongest arguments.

Part of the problem is that there really isn't a market for arguments.   There isn't a system in place for people to use their money to publicly help determine/reveal the strength of an argument/paper.  I tried to explain this to Gurri a few months ago... Commerce As Communication.  In that entry I shared a potential solution that could be used for the Liberal Currents website.  In my example I even included "The Myth Of Neutral Taxation".  Evidently my explanation wasn't that effective though because Gurri didn't see the benefit of turning his website into a market.

Admittedly, it's entirely possible that I'm misreading Rothbard, Buchanan and the Ostroms.  But it's certainly the case that Gurri hasn't even read Rothbard's best work.  And by "best" I mean that it closely corresponds with much of the work done by Buchanan and the Ostroms.  These more credible thinkers shared many of Rothbard's concerns about the government.  Can Gurri make an adequately informed decision about Rothbard or AC without actually having read his best work?   Well... in this entry I have shared several of the most relevant passages.  They should be enough to help Gurri see Rothbard and AC in a new light.

Let's imagine that Rothbard, Buchanan and the Ostroms are 100% correct about the fundamental problems with the government.  In this case, Rothbard will be widely recognized for his role in helping to uncover the truth.  The immense importance of this truth will eclipse Rothbard's mistakes.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for doing so, the greater his place in history.

Now let's imagine that Rothbard, Buchanan and the Ostroms are 100% incorrect about the fundamental problems with the government.  In this case, Rothbard will be counted among the many people who spent their entire lives barking up the wrong trees.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for disproving Rothbard, Buchanan and the Ostroms, the greater his place in history.

2 comments:

  1. Thanks for taking the time to do this.

    There's nothing especially original about the arguments of Rothbard that you cite. I recognize that's part of the point---you want to emphasize his convergence with Buchanan and the Ostroms, in order also to show where he specifically diverged. But I don't just mean that other people came to the same conclusions, I mean that Rothbard wasn't the first, and he was drawing on his predecessors in the Austrian school. No problem with that, of course! I'm no original thinker myself. But if you wanted to make a case for the value of Rothbard in this post, I'm afraid you didn't.

    And in fact I do agree with the views broadly shared by all four thinkers you mention here. The question is: what does it mean? Why should we care? To paraphrase you question to me: so government won't give us optimal amounts of public goods according to the Pareto model of optimality. Therefore...?

    I reject welfare economics, but Rothbard does not, really. He believes it is correct, he just thinks that a consistent welfare economics would see that tax-funded institutions have knowledge problems that cannot be fixed, and therefore we can never know if they are doing well by the standards of welfare economics. I agree---but I reject the standards of welfare economics.

    Welfare economics demands a level of precision that isn't available to human beings. It isn't even useful in the market---it's simply useful for talking _about_ the market. The level of precision which can actually be used in political science and political economy is more along the lines of what we find in this podcast interview of Jacob Levy https://www.libertarianism.org/media/free-thoughts/rationalism-pluralism-freedom

    In it, Levy describes the dual liberal traditions of 1) trying to liberate people from local tyranny through the use of central power, and 2) trying to encourage a proliferation of intermediate groups (including local governments) in order to create sources of resistance to central power, should the latter turn to tyranny.

    These two goals are straightforwardly at odds with each other, but Levy believes a balance needs to be struck to maximize overall liberty. When the host asks him what the correct balance is, Levy says that if all the great thinkers of classical liberalism couldn't figure out the right balance, he was unlikely to. It may well be impossible, there may be no actual "right" balance. But we can get a broad idea of what sorts of arrangements are better balances than others, and make determinations on a case-by-case basis.

    No more precise method is available to us.

    Welfare economics gives us a false sense of precision, but I reject its implicit theory of the good. Whether or not a nation ought to have a military or a welfare state or raise particular taxes is not something that should be determined by aggregating subjective valuation, but by defending the best *reasons* for and against doing so. I don't particularly like Rawls' philosophy either, but I'll take public reason liberalism like his over brute utilitarianism like Rothbard's any day.

    Rothbard's dismissal of surveys, incidentally, is subject to the Lukas critique. Market researchers use surveys and other methods to try and gauge demand for things in advance all the time. Its accuracy is limited, but valuable enough for them to spend tens of billions of dollars a year on it (https://www.statista.com/topics/1293/market-research/). This is all market activity---is it irrational?

    Likewise your idea of making arguments a marketplace. In some sense, they already are---you can see how many people buy particular books, or even take the time to cite particular sources, and so forth. But in another more important sense, they are not---do you *really* think the validity of an argument is dependent upon how much other people are willing to pay to read it?

    Thanks again for taking the time to summarize so many sources.

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