Study their behaviors. Observe their territorial boundaries. Leave their habitat as you found it. Report any signs of intelligence.

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Friday, October 10, 2008

Twenty-First Century Political Economy

The only way to remove the corruption from politics is to decrease the amount of the economy that is owned and operated by the government -- agriculture, education, retirement savings, health care, mortgage lending, etc. When any such industrial sector is socialized, the smartest investment in that industry will usually be to invest in lobbying for a (bigger) piece of the government-controlled pie. Campaign finance reform proposals simply dull some the knives for cutting the pie (thus in effect sharpening others, like those wielded by celebrities and the media). As long as the pie is there, people will be doing whatever they can to gouge out big(ger) pieces of it for themselves and those they favor.

It's only lately seeping into the political world, but there actually has been unprecedented theoretical/scientific progress in the discipline of political economy in the latter decades of the 20th century. Thinkers have blathered about politics since before Aristotle without making any fundamental progress, but starting in the late 1950s academic economists have finally laid a sound theoretical foundation for analyzing the proper scope of government. Nobel Prizes have even been awarded for it. The theory is about how the analysis of market failure leads to a taxonomy of four kinds of goods: private, public, common, and club.

There is a joke that some people would do anything for the environment except take a science course. I add: some people would do anything for social progress except take an economics course. The standard liberal prescription is to create a centralized, non-scalable, byzantine mountain of regulations that tries to orchestrate hundreds of millions of people making tens of billions of decisions, and to constantly try to hand-tune the mountain to react to unintended consequences and to decide what groups/technologies/industries/etc. will be winners or losers. This will always be inferior to a decentralized, dynamic, scalable market-based approach that uses the pricing system to aggregate information and communicate incentives. The role of the government should just be to deter and punish force and fraud, and to correct market failure.

It's an open question whether democracy can work after majorities discover they can vote themselves money taken from other people. The theory of government failure is called Public Choice Theory, and while it too was only created in the last half-century, it has not yet given us any firm guidance on how to design institutions to prevent government failure. The findings so far from Public Choice Theory are very depressing. They demonstrate that voters have systematic incentives to deceive/delude themselves and to let politicians assist in the process. The best answer we have so far is to diffuse and decentralize government power as much as practical, so that jurisdictions compete with each other and people can vote with their feet if necessary.

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