Tracing consequences both seen and unseen.
VromanI’m not going to get speaking engagements with an attitude like this
Posted at 1:05 am on June 18, 2010, by Vroman

I heard Russ Roberts, noted rapper , speak tonight at some Republican club. Roberts expounded on strategies to rebrand small government propaganda efforts, and why this inspires a recent optimistic upturn in his perception of near future politics. Roberts is a good speaker, but I remain unswayed. Certainly his ideas have merit, but I don’t follow that implementing such will make a difference. Status quo corporatism is going to grind on indefinitely until cities are burning.

Roberts makes the facetious observation that big-govt proponents have more marketable objective, and lofty goals are more attractive than a concrete method. Its more engaging to claim one is “saving the children” and yet be fuzzy on the details of accomplishing that, or even abjectly fail; than to have a clearly logical economic algorithm that results in pedestrian outcomes like marginal increases in prosperity. “No one writes folk songs about efficiency”, Russ quips. The upsides of decentralist thought are more about opportunity cost and deadweight loss, and other painfully real, but not readily visible effects. This results in us defaulting to the easier rhetorical tactic of simply exposing a litany of government failures, and thus getting a reputation as unfun cynics relegated to the sidelines.

Roberts goes on to suggest re-framing the debate as not government vs business or collectivism vs individualism, but rather recognize that people are drawn to comforting concepts such as community and cooperation. Thus small-govt advocates should boldly co-opt the left’s central term, Socialism, re-defined as a system where people are given the incentives to freely socialize in all respects from the bottom-up, rather than top-down central planning.

All well and good, and maybe this or variations on the theme could indeed spark some life into general anti-statist sentiment. But bottomline, I see no reason to predict any change in the underlying systemic variables that allows continual siphoning of wealth into the inner circle of lobbyists and decision makers. Ever.

To people who naively accept face value assumptions that policy output ever has true common-good motivations, I suggest imagining the company you work for ran the government. Would your co-workers, bosses, and employees do a good job running the country? Of course not. They would have the exact same personality clashes, vested interests, and petty power plays they do in mundane private industry. Government bureaucracies are no different than any other institution composed of self interested human beings. Sure there are exceptions of self-sacrificing crusaders, but on net, structural incentives dominate.

These are the key powerful incentives faced by government and those it serves:

-Regulatory capture
-Majoritarian redistributionism
-Collective action problem

At any given juncture, if a negative-sum policy is on the table that reduces overall economic activity, but diverts a net gain in resources to a minority, there is a tendency for the minority to devote a greater percentage of their aggregate potential gains towards lobbying efforts to ensure the policy is enacted, than the percentage the majority is willing to spend of their potential losses. Making the reasonable assumption that behind the scenes government policy is a flat bidding war, then the special interest will get its way the lion’s share of the time.

In this way there is a ratchet effect that generates on net ever more restrictive regulation and protectionism. On the other end of the equation, in terms of transfer payments, a slim majority will always have the incentive to take any opportunity to vote itself payouts from the fund that all of society pays into. Again a ratchet effect that ensures ever larger welfare schemes and public projects.

Government will always be called on to tax, spend, and regulate more, because it serves those with the power to make the decision at that moment, regardless of the damage to overall standard of living. The economy will produce less, while spending rises. The deficits will be financed by borrowing for a time, but in the end inflation has to take over, and yet still nothing changes the underlying incentives, so trade will be stifled even more, more taxes will discourage remaining productive opportunities, and more spending will be piled on. Even up until the final moment, none of this changes. Wheelbarrows of fiat currency, martial law, emergency powers, etc. There has to be some kind of violent disconnect between our current structure and any hypothetical stable growth encouraging system. There is no way the political process as it exists now can smoothly self correct toward a laissez faire environment.

I suspect what Roberts and other optimists think they can accomplish via re-education is effectively increasing the percentage of potential losses that majorities are willing to spend to defend themselves from predatory minorities. A large part of this is just making many people in the non-special-interest-bloc aware that they stand to lose at all. However, I posit that its a natural law of political science within non-constitutionally constrained democracies (ie USA since at least 1860 if not earlier) that the legislative process is in effect a shadow market and special interests will always bring disproportionately higher bidding power to bear. They won’t always win if the stakes are too mismatched, but the tendency over time will always be to create more restrictions and spending excuses, rather than remove them. Thus in a weighted random walk, results inevitably in a fully restricted, hyper-inflated economy.

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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson






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