Monday, May 24, 2010

Intellectual Consistency #2

Does there ever come a point at which each person would question the necessity for the existence of government? Notice, I am not asking if it is preferable; I am only asking if there is something (i.e. a law, action, prohibition, requirement, etc.) that the government could "do" that would make each person question its very existence.

I am asking because the recent financial crisis has supposedly shown that the free market has failed (I say supposedly because I don't believe this to be the case at all). As a result, the assumption is that we require government supervision and regulation to fix it. So in order to remain consistent, it seems like there should be a parallel standard for the government; that is, if the government fails at something, we should take away its ability to continue doing it.

It seems to me that there are more people who would instinctively criticize the free market for something, and automatically say the government should fix it. In fact, I would bet there are more people that would advocate total government control (from a perceived omnipresent failure of the free market), than would advocate a total free market without government at all.

At the end of the day, I'm not curious about whether a person would ever believe having no government is plausible or preferable. What I am curious about is if each person has the intellectual consistency to at least say "since each failure of the free market warrants an increase in government intervention, that means that each failure of the government should warrant a decrease in government intervention."

Of course, I'm not optimistic about this being the case. No matter how many times the government makes a mistake, the reaction is always that we need more government to prevent the mistake from ever happening again... until it inevitably happens again. Not to mention, how often do people even admit that the government made a mistake, and not react as though the government is a clumsy child (i.e. by properly saying "I've had enough, the government is no longer permitted to do this ever again," rather than the typical reaction which is something to the effect of "Awww, it was just poorly implemented and an honest mistake, it won't happen again if we give it the resources to do X").

So I really want to know: if you have any intellectual consistency, what would it take for you to think that the government is a nuisance through and through and should no longer exist? Or let me make it more pointed: if we theoretically established and agreed beyond a reasonable doubt that everything the government does is harmful, would you then admit that it should not exist, or would you continue searching for ways to make it less harmful?

Sunday, May 23, 2010

Conflict Resolution: The Non-State Alternative

This is just an anecdote which probably won't be very convincing, but the point is it got me thinking. This morning I walked to my local deli to get breakfast. I placed my order and walked over to the cash register to pay. The total was $10.90. I handed the cashier a credit card only to find out that their machine was broken. She asked if I had cash and after searching in my pocket pulled out exactly $9. She then asked if I was willing to use the ATM machine to get enough to pay the bill. Knowing the ATM machine would charge me anywhere from 15% - 20% of the cost of the meal itself, I politely declined. We both stood there somewhat awkwardly while the chef continued to prepare my meal, unaware of the situation. After a few seconds I proposed giving her the $9 now, and paying the remainder in a week since I visit this deli for breakfast literally every single week. In fact, to make my offer more convincing, I told the chef (who knows me) that I would pay them an extra $1.90 next week when I'm back again, to which he immediately replied "no problem," and turned back to the grill knowing how minor of an issue it was since we see each other every week.

After everything was resolved, I walked out and thought to myself: how could the government possibly improve upon this situation?

I realize that many people believe the government is only useful in circumstances of serious conflict (which this clearly was not), but there are plenty of people who believe there really isn't any situation at all that could not potentially be improved by the government, hence my inquiry.

One action the government could have taken would be to institute a law requiring that if an individual is unable to pay the entirety of any bill at the moment of sale, that individual may not purchase the product or service at all. Under this scenario, my deli would end up not selling its food for less than it typically considers necessary, a situation which appears positive at first glance. But in addition, I would probably leave disgruntled, and the deli would probably have lost a considerable profit (even assuming I never came back with the extra $1.90). I might even decide never to come back there for breakfast again after being frustrated that a situation seemingly so easy to resolve in one of a million ways, instead had to be resolved with my walking out food-less and the deli remaining money-less.

Another action the government could have taken would be to institute a law requiring that if an individual is unable to pay the entirety of any bill at the moment of sale, the seller is required to negotiate a deal and is subsequently required to make the sale. Under this scenario, I would end up with my food after paying less than I normally would, which appears positive at first glance. But in addition, the store would resent my not bringing enough to pay the whole bill, and the store would also resent being forced to negotiate with someone that did not bring enough to pay the whole bill. The next time I return to the deli, the chef might decide to add something "special" to my food, if he were angry enough. Or if I were still willing to risk tainted food and come back to the deli again anyway, I might be incentivized to bring less than the total bill (this time on purpose) knowing the deli is forced to negotiate with me.

Think about what was achieved this morning without any laws: I had less money than I needed, the deli still made me my food, I will eventually make the deli whole, and both the deli and I will continue to do business with each other in the future. This might seem insignificant, but it is just one example of the many different types of conflict we face in society every day. It is also just one example of how people are perfectly capable of negotiating arrangements that allow for long-lasting relationships, without anyone else or anything else having to guide them along the way.

The most telling aspect of what happened this morning is the fact that the government could have instituted a law mandating to take place exactly what did actually take place without a law, and yet that mandated law solution would still be sub-optimal. The difference is that when nobody is forced to do something, there is greater potential for future friendly relations even if a somewhat unpleasant negotiation takes place. On the other hand, when one party is forced to do something against its will, the other party might benefit, but the first party might decide to never engage again with the second party going forward, or at the very least bear resentment forever more.

When the means employed is communication and negotiation, there is of course no guarantee that each party is as satisfied as it could be under the most ideal situation. However, there is a guarantee that each party leaves the encounter knowing it did its very best without anybody being forced to, and as long as the two parties leave the encounter without killing each other (which is most likely the case), there is a good chance they might interact with each other again in the future (or maybe they choose not to, but we surely don't need an institution to tell them to do so or not to do so). Only when force is used is there potential for eternal conflict. Is that what we want?

Wednesday, May 5, 2010

Intellectual Consistency #1

The number 1 in the title of this post is there because I foresee writing many future posts about the same topic. The idea of intellectual consistency is about applying similar standards to similar situations. It seems very straight-forward but as this future series of posts will demonstrate, it isn't always straight forward.

The first example I would like to give about intellectual consistency pertains to the regulatory reform being proposed in response to the financial crisis. The specifics of the reform is actually irrelevant here. The idea I would like to put forward should really not be very earth shattering: if individuals in the private sector have agendas based on their personal biases, incentives, and goals, the individuals in the public sector face the exact same thing.

What all the reform proposals are asking people to do, is assume that while individuals in the private sector have a set of pursuits called X, the individuals in the public sector have a set of pursuits called Y. Though the private sector is motivated by gain, the public sector is motivated by altruism. I am sure there have been many books written about the corruption in government so I won't bother to rehash it here. While the salary for a public official is, strictly speaking, not always the best (although in many instances public sector salaries are better than private sector salaries, though I would imagine for highly specialized jobs the private sector trumps the government sector), there are plenty of other benefits to working in the public sector. Power. Financial compensation "on the side." Power. Fully-paid-for invitations to fancy gatherings with other public officials. And power. Don't tell me for a second those are just minor harmless altruistic perks.

If those who propose regulatory reform want us to believe that a bunch of wildcat bankers went over the top which caused the economy to end up where it is now, then that automatically should trigger in everyone's mind the fact that politicians can also go over the top and cause our economy to end up in a very similar place. There can be no double standard. The wildcat bankers are human and so are the politicians. They are either both susceptible to doing bad things, or neither is susceptible to doing bad things. By the way, here is one of those altruistic things that the public sector does.

What I consider most important to address here though is how the results of these potentially bad actions from the private sector and public sector are actually dealt with. In general, if someone in the private sector makes a mistake, he has to pay for it in some way. CEOs that generate poor performance for a company are fired. Traders who make a wrong bet lose money. The random individual who falls asleep at his job gets fired. I am obviously ignoring failures that would take place in the private sector, but don't, because the public sector chooses to bail them out; just don't forget it is the public sector that protected that failure.

How does the public sector compare? When the government failed in preventing the financial crisis in any way, it asked for more oversight. When the government fails to efficiently use the only resources it promised it needed for a program like [insert literally any government program here], it asks the people for more money. The public sector apparently is the only institution that deserves to thrive on failure.

We need to start applying intellectual consistency to both the public and private sectors. This means recognizing that all the faults in the private sector are replicated in the public sector. The only difference is that the private sector is constantly (and properly) being made to pay for mistakes so they don't happen again, while the public sector, as a matter of policy, gets rewarded every time it screws up.