A Global Free-trade Agreement for Public Goods

People sometimes ask me how, in a tax choice system, we'd determine which organizations would qualify to receive tax payments.  My usual quick response is that, very generally speaking, voters would decide what's on the "menu" and taxpayers would order the "dishes" that most closely match their preferences.

An idea that was interesting enough to blog about just crossed my mind as I was browsing Inge Kaul's book...Providing Global Public Goods.  Now, I'm not saying it's a good idea...or a bad idea...and I'm not quite sure if I'd support it...but it's definitely thought provoking enough for me to throw out there.    

Continuing with the restaurant analogy...rather than limiting taxpayers to only dining at their own country's restaurant...why not allow them to dine at any country's restaurant?  Taxpayers would have to eat (pay their taxes) but they would be able to select the dishes from any country's menu.

Let's take Sarah for example.  She's a young American taxpayer whose number one priority is the environment.  At anytime throughout the year she could make a tax payment directly to the Brazilian equivalent of the EPA.  Sarah would receive a receipt...which, along with all her other receipts, she would submit to the IRS by April 15.

Markets allow resources to flow where they create the most value.  A tax choice system would create a market in our public sector...but the flow would generally be restricted to within our country.  Completely removing that restriction would allow for the global free-trade of public goods.  In theory this would create far more value.

Can you predict which country would receive the greatest inflow of public funding?  What impact would it have on the Israeli-Palestine conflict?

Clearly this public goods free-trade agreement would facilitate global convergence.  But how much would it help developing countries catch up with the rest of the world?  Well...that would depend on the rate of outflow.  As I argued in my response to John Holbo's critique of libertarianism...we can gain far more from global innovation than the world can gain from American innovation.  The more we help developing countries catch up...the more we'll benefit from their innovation contributions.

Speaking of my favorite Crooked Timber Liberal...I'll conclude this brainstorm with this comment that I posted on John Holbo's blog entry on selling votes (the discussion on my blog)...

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Peter T…oh man…never thought of that! It’s an extremely fascinating point though.

Let’s say Brazil was going to vote on whether it should develop or conserve the Amazon rain forest. Given that I’m not a citizen of Brazil I wouldn’t be able to directly vote on the proposal…but nothing would stop me from sending money to any Brazilian who was on my side of the issue. So I’d send $100 to a Brazilian conservation organization that would be responsible for buying votes for the pro-conservation side.

Everybody in the world would benefit from saving the rain forest…so how much money would everybody in the world send to the conservation organization? Then we can imagine all that money being exchanged for votes…in essence all that money would be transferred to Brazilian citizens that were willing to sell their votes in favor of conservation.

That’s some really heavy stuff. People in country A wouldn't send money to country B unless they cared about the outcome of elections in Country B. Imagine there was an Islamic fundamentalist party running against a pro-Western party in some Middle Eastern country…how much money would the world send to the organization responsible for purchasing votes for the pro-Western party? Then we can imagine all that money being transferred to people willing to sell their votes to the organization responsible for buying votes for the pro-Western party.

Will Noah Smith Sing My Praises?

Hmm...if conservatives could make me a movie "pamphlet" that made me sympathize with $300k/yr earners who get taxed too much, I'd sing their praises too... - Noah Smith, Why I love Michael Moore

Here are a few passages that I shared in my recent critique of liberalism...with a few new ones thrown in for added value...

In other words, people will start buying something in large numbers if it solves a big problem for them. But most first-world problems—needing an easier way to record your favorite TV programs or keep track of what’s in your fridge—just aren’t that pressing. In developing countries, on the other hand, technology can transform lives. - Christopher Mims, How a $20 tablet from India could blindside PC makers, educate billions and transform computing as we know it

Is it a problem when you don't feel good about your own beliefs? Yes. Are you willing to pay Moore to solve this problem? Yes. Am I?  No.  It should be clear that each and every single one of us determines how much money Moore receives.  That's why markets work...we all have the opportunity to vote with our dollars...

The capitalist society is a democracy in which every penny represents a ballot paper. - Ludwig von Mises

For example...

Wal-Mart can’t charge more; if it does, its customers will go elsewhere. The same is true of Target and Costco. In a sense, Wal-Mart is the elected representative of tens of millions of hard-bargaining shoppers, and, like any representative, it serves only at their pleasure. - James Surowiecki, The Customer is King

also...

You might say, “That’s okay, Williams, if you have enough dollar votes. But what about poor people?” Poor people are far better served in the market arena than the political arena. Check this out. If you visit a poor neighborhood, you will see some nice clothing, some nice cars, some nice food, and maybe even some nice homes—no nice schools. Why not at least some nice schools? The explanation is simple. Clothing, cars, food, and houses are allocated through the market mechanism. Schools are allocated through the political mechanism. - Walter E. Williams, Where Does Your Vote Really Count? 

The market mechanism helps us understand that all our shopping decisions are indirectly responsible for American jobs being shipped overseas.  When American jobs are shipped overseas...we end up with more affordable products and people in developing countries end up with better opportunities...

These improvements have not taken place because well-meaning people in the West have done anything to help--foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better. - Paul Krugman, In Praise of Cheap Labor

It's not an edifying spectacle?  How could good intentions with negative consequences possibly be more edifying than selfish intentions with positive consequences?  

Rising wages in emerging markets and higher shipping costs are also closing the cost gap between developing markets and the United States. - Scott Malone and Ernest Scheyder, Outsourcing Losing Its Allure As China Costs Soar

Here's the basic problem with the large majority of liberals...

The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers. - Paul Krugman, In Praise of Cheap Labor

They just don't think things through.  Here's how they think...

Economics can establish that a man’s marginal utility of money diminishes as his money-income increases. Therefore, they concluded, the marginal utility of a dollar is less to a rich man than to a poor man. Other things being equal, social utility is maximized by a progressive income tax which takes from the rich and gives to the poor. This was the favorite demonstration of the “old welfare economics,” grounded on Benthamite utilitarian ethics, and brought to fruition by Edgeworth and Pigou. - Rothbard, Toward a Reconstruction of Utility and Welfare Economics

Yet what would they realize if they thought things through?  They'd realize that, compared to people in developing countries...we are filthy rich.  Yet...how many liberals sing the praises of fat-cat capitalists who give the jobs that they created to poor people in developing countries?

Instead, Noah Smith wants to sing the praises of the guy who financially benefits from criticizing capitalism...

I'm a millionaire, I'm a multi-millionaire. I'm filthy rich. You know why I'm a multi-millionaire? 'Cause multi-millions like what I do. That's pretty good, isn't it? - Michael Moore  

People voting with their dollars isn't just pretty good...it's f'ing awesome.  Markets work because we all have the freedom to put our money where our mouths are.  This also explains exactly why the government does not work.

Even though I fundamentally disagree with Michael Moore...I want him to have the freedom to put his taxes where his mouth is.  Why?  Because that's the key to prosperity, abundance and progress.

Subsistence Agriculture vs Sweatshops

Nobody would consider working in a sweatshop to be a "good" option.  So what does it mean when people choose that option?  It clearly indicates that working in a sweatshop is their "best" available option.  That tells us something about their other available options.  For example...here's a photo I took of a young girl in Afghanistan gathering dung for a stone wall...

When liberals attack owners of sweatshops...they are attacking the people who give other people "better" options.  That's not how you help people...that's how you screw both the people who need help and the people who are truly helping them.  If liberals genuinely wanted to help people...then they would provide them with "better" options.  For example...they could start air-conditioned factories.

Are air-conditioned factories really a "better" option than sweatshops?  That should be up to employees and consumers to decide.  But we certainly don't make any progress...and we certainly do not help people...by allowing the government to dictate who business owners hire and how much they pay them.

For more on this concept see...Biting the Hand that Employs You

Anarcho-capitalism vs Civilization

When I lived in Afghanistan for a year, going from village to village, it was like I had been transported back into time. Way back into time. It was like living in the Old Testament.

Part of our efforts in Afghanistan involved trying to help the Afghan people set up a very basic government..."minarchism" so to speak. The challenge is that Afghanistan is a tribal society. They do not have a national identity...they have a tribal identity. They do not bear allegiance to a flag that symbolizes the entire nation. Their motto is not e pluribus unum. Here in America we think of ourselves first as Americans then second as African Americans, Middle Easterners, Asians, Mexicans, Caucasians...or...Christians, Muslims, Buddhists, Atheists...or...liberals, conservatives, libertarians, anarcho-capitalists...or...

If the Afghan tribes had all worked together...would they have been able to repel the countless invasions that occurred throughout their history? If you've read the Bible...how many times were the tribes of Israel conquered by more civilized nations? Same thing with the native Americans.

Clearly we all started out in tribal societies...but some managed to become "civilized" while others have not. Having studied development theory...I can tell you with absolute certainty that we do not know why some tribes develop while others do not. There are plenty of theories but they are all just that...theories.

What would happen if, via anarcho-capitalism, we got rid of our national identity? If we did not think of ourselves as "Americans"...then what would we think of ourselves as? Obviously our secondary identity would become our primary identity. There would be no allegiance to a flag and there would be no e pluribus unum.

But...there would be property rights! Right? Is that enough though?

I'm willing to entertain the possibility that anarcho-capitalism just might work. Yet...I'm also willing to entertain the possibility that it really wouldn't work.

The beauty of pragmatarianism is that I do not have to assume I know what I do not. As Socrates said, "...it seems that I am wiser than he is to this small extent, that I do not think I know what I do not know."

Rothbard drooled over a button that he could push to entirely destroy the state in one fell swoop. If the state is entirely unnecessary though...then each part of the state is also entirely unnecessary. Why not just allow each and every taxpayer to use their own, individual, hard-earned taxes to indicate which parts of the state are entirely unnecessary? If consumers do not purchase unnecessary private goods...then why would they "purchase" unnecessary public goods?

Why not become a devil's advocate for public goods?

The Dialectic of Unintended Consequences

Here's an article that the author over at the EconoSpeak blog wrote on how the discussion of power is missing from economic discourse....The Power of Economics vs. The Economics of Power.  It's for sure that power and control is a fascinating topic...so fascinating that my comment on his entry transformed into this blog entry...

Eh, it would have been more interesting if you had considered both sides of the equation.  So here's the other side...

Unions also use their power to engage in rent-seeking behavior.  They strong-arm companies into paying wages and benefits that are above what the market says their labor is worth.

It's the same concept with the minimum wage.  One unintended consequence of these efforts is that high school kids end up making poor career choices on the basis of this inaccurate information.  Unions and liberals manipulate traffic signals and change the signal color from red to green.  Kids see the green light and drive directly into oncoming traffic.  This results in a vicious cycle of inefficient labor allocation that negatively impacts our economy to a great degree.

This concept is certainly not a new one.  In 1848 the economist Frédéric Bastiat wrote an excellent essay on the opportunity cost concept.  Here's an excerpt...

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

Then in 1946 Milton Friedman and George J. Sigler wrote on how ceilings on rent were actually counter-productive...Roofs or Ceilings? The Current Housing Problem

Unintended consequences can be very rough sometimes.  But in the case of unions, there was one very righteous unintended consequence.  At the height of their power in the 50s and 60s, unions demanded wages that were so high that it became economically sound for industries to move their production overseas.

Well...that might not sound awesome to most...but it's very awesome to me for a couple reasons.  First, I studied development theories at UCLA and learned about all the numerous and extremely costly attempts by our government to help third world countries develop.  Nearly all the attempts were complete failures that had severe negative unintended consequences.  Talk about a depressing field.

Second, having lived and worked in several developing countries I quickly learned to value the well being of people in those countries as much as I value the well being of Americans.

So from my perspective, it's awesome and not a little ironic that unions have unintentionally done more to help people in developing countries than all of the intentional USAID and IMF efforts combined.

People in unions unintentionally donated their jobs to people in developing countries.  People in unions lost choices while people in developing countries gained choices.  But it's important to keep in mind that the marginal utility loss of going from 50 to 49 choices isn't as large as the marginal utility gain of going from 1 to 2 choices.  The people in developing countries gladly chose these "donated" jobs over subsistence living.  As more and more people learned the skills necessary to do these jobs there were more and more people who were able to take these skills and start companies of their own.  The demand for labor increased while the supply of labor stayed constant...so wages of course increased.  Now these newly developed countries are moving their industries to developing countries where wages are considerably lower.

Interestingly enough, Paul Krugman (of all people) touched on this idea in his paper...In Praise of Cheap Labor - Bad jobs at bad wages are better than no jobs at all.

A race to the bottom?  Yeah, no...it's a race to the top.  The profit motive within the proper framework unintentionally leaves a trail of developed countries in its wake.  Developing countries continue to converge in order to put themselves in the path of this unintentionally virtuous cycle.

So from the narrow American perspective the outcome was negative while from the broader global perspective the overall outcome was extremely positive.  America took a small step backward so that the Asian Tigers could take a giant leap forward and catch up to us.

China however, was not one of the Asian Tigers.  At the same time that the Asian Tigers were leaping forward with an open market approach...China was attempting to leap forward with a closed planned approach.  Rather than open China up to foreign investment Mao Zedong and his fellow planners decided it would be a good idea to collectivize agriculture in order to direct more resources towards industrialization.

While the market approach gave people more choices the planned approach took choices away from people.  The disparity between the results was incredible.  The market approach resulted in the Asian Tigers actually leaping forward while the planned approach resulted in 20-30 million Chinese people starving to death as a direct result of state induced famine*.

Mao Zedong's unintentionally disastrous efforts unintentionally resulted in the pragmatic recommendations of Deng Xiaoping finally being given genuine credence.  That guy was seriously righteous...he had been going around saying that he didn't care whether a cat was black or white...what mattered was whether it caught mice.  He opened China up to foreign investment...people were given more choices...and as a direct result China has now truly leapt forward.

It would seem straightforward that it's safer to err on the side of giving people more, rather than less, choices.  This idea is more eloquently expressed by Thomas Jefferson..."I would rather be exposed to the inconveniences attending too much liberty than those attending too small a degree of it."  Libertarians love that quote...but it needs a really good dash of Deng Xiaoping's pragmatism...

Pure libertarianism needs something to curb its extremity.  That something is pragmatism.  

Philosophical pragmatism is an essential American development.  Its animating principle is that truth is social and constructed rather than transcendent and objective.  It holds that ideas prove their worth in action, and that the results of an idea are the best criteria by which to judge its merit.  And since what works for me might not work for you, pragmatism advocates a strenuous openness to all perspectives. - James Walsh, Liberty in troubled times

Deng Xiaoping plus Thomas Jefferson equals pragmatarianism.  Pragmatarianism advocates that people be allowed to choose where their taxes go.  Taxpayers wouldn't have a choice whether they paid taxes but they would have a choice which government organizations received their individual taxes.

Taxes are not too dissimilar from charity.  The ancient Jewish charity law..."Tzedakah"...has 10 levels of giving that are ranked from least righteous to most righteous.  The least righteous way to give is to give begrudgingly.  The most righteous way to give is to give in a way that enables the recipient to become self-reliant.  Right there we can see the basis between the disparity between the liberal and conservative approaches to welfare.

For the large majority of people we can say that taxes in their current form can be considered the least righteous way to give.  People have a vanishingly small say in how their own taxes are spent, so it's understandable why they would begrudge paying their taxes.  A pragmatarian system would give taxpayers a choice to allocate their taxes to the most righteous government organizations.  A truly righteous government organization is one that produces results.

From my perspective...when I consider all of our government's failed attempts at helping other countries develop...I'm incredibly incredulous regarding our government's ability to help us continue to develop**.    What helped those other countries become self-reliant was when people in unions unintentionally sacrificed their own jobs.  The corporations that then set up factories in developing countries were not motivated by altruism...their sole motivation was to increase profits...but the unintended consequences of their actions were more altruistic than any intentionally altruistic efforts by government.

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it. - Adam Smith, The Wealth of Nations

When it comes to the welfare of people in the US...should we trust government intervention or trust market forces?

Whatever your answer is...I'll respect it and only ask that in return you respect my own.  It is fundamental to truly appreciate that the most righteous level of political altruism is to allow people to directly support the government organizations that they value.  Hyperpartisan obstructionism isn't just counter productive on the party level...it's also counter-productive on the individual level as well.  We are all just blind men feeling different parts of an elephant and coming to our own conclusions.  To come to the correct conclusion we have to piece our perspectives together.

Pragmatarianism would allow us to piece all our perspectives together.  The invisible hand would take all our individual, valuable and essential puzzle pieces and assemble them together to display the perfect picture.  The cumulative choices of millions of taxpayers will reveal exactly what the ideal scope of government should be.


* I highly recommend reading Dogshit Food by Liu Heng.  The story is included in the Columbia Anthology of Modern Chinese Literature.

** For the life of me I can't find or remember the source of the ironic idea that people in the middle ages were too stupid to realize that they were in the middle ages.  Anybody know the actual source?