Voting With Their Feet
Antitrust Regulators Should Break Up The Government
I am in Brazil for the inauguration of Mises Brazil, the Forum da Liberdade, and an event at the Instituto Millenium. Today I had the pleasure of seeing my dad debate quite effectively against government intervention, getting many laughs from the crowd, as well as explaining the basic public choice critique of regulation. I will post a video when it is available.
One of the other participants was a government antitrust regulator, who spoke about how his job is to intervene in order to promote competition and the orderly functioning of the markets. He talked about the badness of price-fixing cartels and concentrated industries, and the need for competition. Price-fixing cartels are like pickpockets, he claimed, transferring money from consumers to the cartel. They raise prices and restrict supply. He even spoke about the importance of barriers to entry – how without such barriers, cartels are not effective.
Naturally all I could think about, listening to him, was how all his arguments apply to the federal government of Brazil for which he works, and the government industry in general. The local states in Brazil, as in most countries, are weak, most power is concentrated in the hands of the federal government. Thus Brazilians have little competition for supplying them government services, prices are high, and quality is bad (“Scandinavian taxes and Haitian services” is what some locals call it).
Federal governments are not only monopolists, they are the biggest monopolists in the world. The speaker talked about businessmen possibly transferring millions of dollars of value to them, but the government regularly transfers billions and more. If we’re going to worry about monopolies, let’s worry about the federal government, let’s decrease the barriers of entry, and make the government industry more competitive. Seasteading, secession, state’s rights, moving activities to cyberspace, spacesteading, tax competition – these are our weapons in the fight against low quality governance.
California vs Texas during the recession
This Reason.tv video highlights the different economic outcomes between California and Texas during the recession.
The United States of Insurance
At the Dilbert blog, Scott Adams stumbles his way towards competitive governance. He proposes privatizing government by replacing our current system with an insurance-based model:
In step one of this hypothetical future, the government of the United States buys every insurance company in the country at estimated current values. In this imagined future, the government becomes the insurance provider for the country, and perhaps the rest of the world. The profits from selling insurance will eventually replace taxes. Our government would become a for-profit enterprise…
The biggest leap of faith in this thought experiment is that the government could do anything right. But consider that 90% of private businesses eventually go belly up. If you could measure the performance of your government the way you measure the performance of private companies – by profits, and the government leaders themselves had a profit motive, how efficient could government become? The United States of Insurance would allow that sort of profit measurement and incentive.
There’s no reason to assume monopoly control here. In the absence of a competitive market, it is misguided (to put it mildly) to assume USG management would be more efficient at managing all private insurance firms. Why not allow insurance companies to compete across state lines? Is there an individual mandate? What are the fines for not complying? Who imposes them?
Walter Williams Flirts With Secession
He writes:
I believe we are nearing a point where there are enough irreconcilable differences between those Americans who want to control other Americans and those Americans who want to be left alone that separation is the only peaceable alternative. Just as in a marriage, where vows are broken, our human rights protections guaranteed by the U.S. Constitution have been grossly violated by a government instituted to protect them. The Democrat-controlled Washington is simply an escalation of a process that has been in full stride for at least two decades. There is no evidence that Americans who are responsible for and support constitutional abrogation have any intention of mending their ways…
Americans who wish to live free have several options. We can submit to those who have constitutional contempt and want to run our lives. We can resist, fight and risk bloodshed and death in an attempt to force America’s tyrants to respect our liberties and human rights. We can seek a peaceful resolution of our irreconcilable differences by separating. Some independence movements, such as our 1776 war with England and our 1861 War Between the States, have been violent, but they need not be. In 1905, Norway seceded from Sweden; Panama seceded from Columbia (1903), and West Virginia from Virginia (1863). Nonetheless, violent secession can lead to great friendships. England is probably our greatest ally.
Oooh, don’t forget Seasteading, too. Williams pulls back a bit at the end, saying he simply wants the original bulwarks against state power in the Constitution restored. Even so, secession may be the answer for that desideratum. If a single state secedes, the competitive upshot may give the USG a push in that direction.
A recent Clay Shirky post on the rise and fall of big media is stirring up some discussion. (Isegoria here and Anomaly here.) Old lead-footed institutions die hard, Shirky says, but when they finally succumb–look out–because the fall is fast and swift. Sure, they might see it coming, but because of their size and ossified culture, these institutions are constitutionally incapable of adjusting. The new circumstances demand a simplicity they can’t handle. Meantime, institutional momentum keeps these hulks around in a kind of free floating twilight. Kevin Kelly distills this into the Shirky Principle:
- “Institutions will try to preserve the problem to which they are the solution.”
And Shirky’s not talking about non-profits. He’s talking about newspapers and television. Anyway, what’s interesting is that to frame his discussion about myopic TV executives, Shirky appeals to the theories of decline set forth in Joseph Tainter’s The Collapse of Complex Societies. Shirky writes:
Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.
The ‘and them some’ is what causes the trouble. Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.
In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.
When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.
I haven’t read Tainter’s book. I do think this idea of complexity points in the right direction. Still, I don’t believe it’s fine-grained enough to provide an adequate explanation for the problem. Complexity describes a property not a mechanism. That is, not all complexity is bad. For instance, the uncontested levers of prosperity–free trade, property rights, the rule of law and so forth–these simple rules can generate some very complex, but resilient societies. So it’s a certain kind of complexity we should be concerned with, one that acts as a trigger for institutional sclerosis.
We’ve proposed two mechanisms (along with Cardwell and Mokyr and Romer): stronger and broader barriers to entry established by vested interests with political power. Throw some self-interested people into this mix and we can see why old institutions try to preserve the problems they were the solution to. These folk fear losing the rents they currently collect. And perhaps this is what Tainter means when he refers to accumulating bureaucracy and tribute.
But what’s a bit misleading is Shirky’s analogy. Profit-maximizing companies are different beasts from societies as a whole (or systems of governance). The fall of GM is not the fall of Rome. It could be that a similar mechanism of decline works within large corporations: high level managers create barriers to prevent the ascension of profit-making ideas from below. But we can’t simply point to vague concepts like “bureaucracy” and “tribute.” At the level of the firm, that doesn’t seem to explain enough.
Still, Shirky’s last paragraph is prophetic. I can’t help but extrapolate from media to governance:
When ecosystems change and inflexible institutions collapse, their members disperse, abandoning old beliefs, trying new things, making their living in different ways than they used to. It’s easy to see the ways in which collapse to simplicity wrecks the glories of old. But there is one compensating advantage for the people who escape the old system: when the ecosystem stops rewarding complexity, it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.
CSI Global Tax Enforcement: Come Kiss The Ring
The IRS held a presser to announce their new crack squad dedicated to sniffing out wealth held by Americans abroad. The head of this posse calls it the “globalization” of tax enforcement. Captain Sulman says:
“So what’s our game plan here?” Shulman said. “At least initially, we will be looking at individuals with tens of millions of dollars of assets or income. Going forward, we will take a unified look at the entire web of business entities controlled by a high wealth individual, which will enable us to better assess the risk such arrangements pose to tax compliance and the integrity of our tax system.
Of course tax evasion may be a problem, but often this is merely an excuse to reduce tax competition. It’s a fine line. Dan Mitchell has covered similar efforts to tighten the screws on tax havens and discreet, low tax jurisdictions here.
Ephemerisle And Efficient Law
From a conversation today w/ John Chisholm at the new TSI office:
Patri: Different islands can have different laws on things like nudity. But they can’t have spillover effects onto other islands, so if you have nudity you have to have walls.John: But why can’t the other islands, that don’t like nudity, have the walls? If you start limiting one island for the good of others…
Patri: I didn’t think of that! I guess…the efficient rule depends who is the least-cost avoider…Wow, I should have thought of that, considering the Coase Theorem was invented (or at least popularized) at my great-uncle Aaron Director‘s house.
John: It would depend how many nudist-hating islands there are. If there is one, then it’s the same price for them to have a wall as the nudists, if there are more than one, it’s cheaper for the nudist island to have a wall.
Patri: But that’s assuming there’s only one nudist island, which may not be true! So it depends whether there are more nudist islands or nudist-hating islands. Whichever is least numerous would need the fewest walls and is the least-cost avoider.
John: But that’s assuming that the other islands are indifferent! Maybe they prefer to see or not see nudity. *And* it depends how much people care either way.
Patri: You’re right – it depends on the total utility function of the whole group with respect to nudity!
And so we re-derived part of the theory of economically efficient law in the course of discussing Ephemerisle rules. I love how Ephemerisle invokes the real issues of seasteading, front and center. (Fortunately we already have questions in the placement survey that ask not only what people want but what they want to be around.)
(If you have no idea what I am talking about, go read my dad’s book on Law & Economics: Law’s Order, it’s free online)
IPad Vs. ObamaCare
I went to the Apple store today to check out the iPad and I have to say this thing would make Ming The Merciless blink. A couple weeks ago Steve Jobs was the ringleader at a big intro for the iPad and since then, the press and commentariat have been debating the vices and virtues of a tablet computer. Jobs’s enthusiasm has been lampooned ad nauseum (Incredible!). As I say, the pad’s a marvel but the only arbiter that matters here is the market. So we’ll have to see. Anyway, I only bring this up because I think it should be contrasted with the selling of ObamaCare to the public. From the WaPo today, a story entitled “Obama gives 17-minute answer to health-care query in N.C.“:
A woman named Doris stood to ask the president whether it was a “wise decision to add more taxes to us with the health care” package. “We are overtaxed as it is,” Doris said bluntly.
Obama started out feisty. “Well, let’s talk about that, because this is an area where there’s been just a whole lot of misinformation, and I’m going to have to work hard over the next several months to clean up a lot of the misapprehensions that people have,” the president said.
He then spent the next 17 minutes and 12 seconds lulling the crowd into a daze. His discursive answer — more than 2,500 words long — wandered from topic to topic, including commentary on the deficit, pay-as-you-go rules passed by Congress, Congressional Budget Office reports on Medicare waste, COBRA coverage, the Recovery Act and Federal Medical Assistance Percentages (he referred to this last item by its inside-the-Beltway name, “F-Map”). He talked about the notion of eliminating foreign aid (not worth it, he said). He invoked Warren Buffett, earmarks and the payroll tax that funds Medicare (referring to it, in fluent Washington lingo, as “FICA”).
Always fond of lists, Obama ticked off his approach to health care — twice. “Number one is that we are the only — we have been, up until last week, the only advanced country that allows 50 million of its citizens to not have any health insurance,” he said. A few minutes later he got to the next point, which seemed awfully similar to the first…
All I have to say is that this is a fable about the difference between markets and governance. If Steve Jobs gave this performance, he’d have been vilified for months. And yet this ObamaCare, a nearly trillion dollar program (at the outside), gets sold by a clown yelling fire from a stage and the response from the media and the public is tepid. Listening to this speech, an urge comes over me to find another government service provider as fast I can. Unfortunately I can’t do that just yet. But we’re trying. The takeaway: ObamaCare, conscription for the equivalent of Videotex when we could, if wanted, one day have the iPad.
Video of Obama’s performance here.
The Effects of Some Policies Are Not So Obvious
In this week’s NYTimes Magazine Deborah Solomon interviews Rand Paul:
Q: But in light of your distrust of the federal government, where are you on an issue like seat belts? Federal legislation requiring people to wear seat belts could obviously save lives.
A: I think the federal government shouldn’t be involved. I don’t want to live in a nanny state where people are telling me where I can go and what I can do.
And I know what you’re thinking. My God, man!–You’re worked up over that? But this is a great example…the words that give the game away…the sorts of phrases the ministers at the State Department in Moscow were looking for daily as they scoured each newspaper from the West for a sign something was afoot—“could obviously save lives.” Yup, bingo, there it is!
We may excuse Ms. Solomon. The experience required for a NYTimes gig doesn’t include a basic fluency in economics, only a nodding familiarity with dialectical materialism. So she hasn’t heard of Sam Peltzman, or even the more accessible Econ Talk, or the general idea of unintended consequences. But, Deborah, can I recommend something more at your speed? It’s episode seven from the ninth season of CSI: Crime Scene Investigation. Yeah, the one called Woulda, Coulda, Shoulda, where one character says to another:
“The safer they make the cars, the more risks the driver is willing to take. It’s called the Peltzman effect.”
See, TV could obviously be good for you!
Let A Thousand Nations Bloom 