Externalities and Our Children

The reason why things don’t work properly is that the right people are not in politics. Of course, what you think are the right people is not necessarily what your neighbor thinks, so ultimately the problem is a lack of national unity. What is needed is that we share the same values under democratic political leadership. And even this is not enough. Every voter must spend at least as much time studying every major political issue as he spends buying a new car. Add inclusivity to all this, and the proliferation of externalities would become solvable. If we are one, there cannot be anything external to us (reminder: the main characteristic of externalities is that they are external to the market). With more Alexandria Occasio-Cortezs and more Sidney Powells in politics, with more knowledgeable and devoted bureaucrats, we could hope that greedy consumers would stop gouging businesses, that rational policies would prevail, and that people with good union jobs would work selflessly for our children.

My readers will understand that the model of the state adumbrated above is poles apart from any defensible political and social theory. We may say it’s balderdash. It’s an excuse to playfully mark the 2021 April Fools’ Day (check this link to the Encyclopedia Britannica and you will see what the fish has to do with all that).

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The Economics of Violence: A Short Introduction

The simplistic declarations about violence heard after the “insurrection” of January 6 at the Capitol invite a reflection on the economics of violence. The economist’s starting point is that an individual uses violence when it is in his personal interest to do so—when, given his circumstances and constraints (including subjective moral constraints or the lack thereof), he finds the net expected benefit of violence greater than the net expected benefit of peaceful exchange for him. This is a positive observation about what is, not a normative statement about what ought to be, an important distinction to always keep in mind.

As the late UCLA professor Jack Hirshleifer argued, we must not overlook “the dark side of the force” (of the force of self-interest), which includes “crime, war, and politics.” (I am quoting from the mimeographed July 28, 1993 version of his article “The Dark Side of the Force.”) Cooperation (such as trade) happens but “with a few obvious exceptions, occurs in the shadow of conflict.” Hirshleifer wrote. In positive economics, violence is important:

All aspects of human life are responses not to conflict alone, but to the interaction of the two great life-strategy options: on the one hand production and exchange, on the other hand appropriation and defense against appropriation.

Which strategy one individual chooses depends on his preferences, his abilities in voluntary cooperation, the defensive or offensive production technologies available to him and to others, and his evaluation of the future. But how should we think about political violence?

Open violence—“the war of all against all”—has dire consequences for prosperity. Virtually all individuals have good reasons to want it minimized. Thomas Hobbes formalized the idea that such minimization is what gives legitimacy to the state. Populations accepted the burden of the Roman Empire or the medieval lords or the king or the modern democratic state because these governments were deemed not as bad as attacks from the “roving bandits,” private or governmental, who would have otherwise proliferated and attacked them. The “roving bandit” concept belongs to the theory of economist Mancur Olson, notably in his article “Dictatorship, Democracy, and Development” (American Political Science Review 87:3 [September 1993], 567-576).

Governments do not abolish violence as its threat underlies their injunctions and bans. But the most useful governments prevent violence from degenerating into open violence. They replace the latter with a more subdued, formal, and at least partly constrained form of violence.

This does not mean that revolution is never in the interest of some or many or even—under the worst governments—a majority of the ruled. The collective action necessary to organize a revolution, however, faces daunting problems. Which individuals will start the revolution and pay the necessary personal costs, often with their lives? (On the theory of collective action, a milestone in economics, see Olson’s book The Logic of Collective Action: Public Goods and the Theory of Groups, 1966].)

Revolutions do occasionally happen, though. At some tipping point, the National Guard or other praetorians do not shoot on demonstrators or on the mob attacking the “City of Command,” as political theorist Bertrand de Jouvenel called the center of government power (in his book On Power [1945 for the original French edition]). Bodyguards decamp where the signs become unmistakable that the regime is crumbling, because it is in the private interest of each of them to not be on the losing side. In Romania, Nicolae Ceausescu had no more praetorians when he was arrested by revolutionaries and executed with his wife. In different circumstances, Saddam Hussein was found in a rabbit hole, alone. Syrian ruler Bashar al-Assad did crush the revolution by shooting on the crowds but, perhaps most importantly, by becoming a vassal of the Russian government.

The threat of revolution or revolt can lead some governments to rule by terror, but it can also exert a restraint on state power. The factors at play include the technology (guns and such), the propensity to violence on both sides, and the existing political institutions. Olson provides a historical example of how the threat of revolution can be useful:

In Venice, after a doge who attempted to make himself autocrat was beheaded for his offense, subsequent doges were followed in official processions by a sword-bearing symbolic executioner as a reminder of the punishment intended for any leader who attempted to assume dictatorial power.

Thomas Jefferson would have agreed. He famously wrote:

I hold it that a little rebellion now and then is a good thing.

Interestingly, once he was president, he did not even support ordinary smugglers.

One problem with revolutions, illustrated by the 1789 French revolution and the 1917 revolution in Russia, is that they can strengthen power instead of limiting it. In America, the jury may still be deliberating. Many thinkers, including most economists of the public choice school as well as Anthony de Jasay, have argued that the state as an institution has a logic that leads to growing power.

Even a liberal social contract as Nobel economist James Buchanan theorized it is ultimately based on threats of violence. When some individuals think that the contract is not in their best individual interests and that they would fare better in anarchy, they will want to renegotiate the deal or walk out of it. Only new rules and/or some bribes can prevent a civil war or a revolution. As Hirshleifer said, the option of violence is always lurking in the background.

Classical liberalism claims that individual liberty under the rule law and the prosperity that follows are the best set of institutions to minimize violence—a potent argument. However, Anthony de Jasay, a liberal anarchist (or perhaps a conservative anarchist), has dampened the liberal enthusiasm by emphasizing the need for an effective balance of power between the ruler and the ruled:

Self-imposed limits on sovereign power can disarm mistrust, but provide no guarantee of liberty and property beyond those afforded by the balance between state and private force.

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