donderdag 28 juni 2012

Democracy as a Decision Making Procedure

Democracy as a decision making procedure

In a freeman article Gene Callahan once wrote that ‘fantasy is not an adult policy option’, meaning that when and if we talk about certain policies, we have to take into account that we are in a world with scarce resources which implies limited possibilities and thus that marginal trade offs have to be made. The point of this article is to apply this central insight to democracy as a decision-making procedure. 

Everybody engaged into politics is bound to have a discussion on what the government should or shouldn’t do sooner or later. One-way of approaching this discussion is from a moral point of view: ‘I think it’s immoral that the government does or doesn’t do x’. There is nothing wrong with this way of talking about policy,  but in this article I wish to focus on a different side of this argument. We live – for better or for worse – in a democracy, i.e. where we have elections to select the people in charge. If one is advocating that the government should do x, it is hard to mean that the government should do specifically x as the person itself wants it to be. Usually; it means at most that he wants the governmental decision making process should take certain decisions regarding x. This procedure is, however, distinguished from the market process in several ways. 

The purpose of this article is to make two related points. The first one is that even if there are certain (theoretical) arguments why it would be a good idea that a wise and benevolent government takes certain decisions, it doesn’t follow that it would be a good idea to let our current government make this decision. We can’t argue for policies in a vacuum; when advocating certain policies we have to take into account that this policy will be set up, executed and controlled by the government as we know it today, not by a government of our fantasies. The second one is to clarify the difference between the market process and the governmental process and why there is a certain tendency for the first one to make better decisions than the second one. Incidentally; it will also be suggested that certain standard arguments against markets also (and maybe even more so) apply to government! 

The Nature of the Democratic Process

The most important point is the nature of voting in comparison to buying a product in the market. Often it is maintained that there is a striking similarity: you ‘choose’ products in a market or you ‘choose’ politicians. If we consider the first one as a good way of organizing society, why not the second one? 
There is however a fundamental gap between government revenue and the goods and services it should provide. As a consumer in a market, you have to be willing to pay the cost of a product and some profit, else the producer won’t make it anymore. As a voter; you can just demand more and more goods provided below cost to your role as a consumer, paid for by ‘everyone’! The government is the equivalent of a tragedy of the commons: we all want more but nobody wants to put up with the costs, so we end up with a depleted resource. Politicians are then forced to find some way to have more money, without the risk of losing to much political support. It’s obvious that the generations to come don’t have a big say in the current political process, so it’s relatively easy to externalize costs towards the future, without facing to much negative political feedback in the present. So is it really that strange that we have such a high debt?  

Another difference is that as a consumer one buys a finished product and leaves the production process to the market. In a democracy, however, one supports a certain ‘producer’ of laws, regulations and taxes over another one. You don’t ‘buy’ a product; you support someone who makes decisions, backed up by law, in a certain process for a certain period of time. It’s like ‘supporting’ McDonalds over Burger King to make your burgers for the next 4 years. However; related to this is another problem: it’s not just your burgers! When you vote for a politician, he gets to support his vision on the whole of issues his branch of government enacts policies on. So even if you prefer candidate x on issue A and candidate y on issue B; you only get to select one. So McDonalds will make your burgers, fix your car and provide you with a refrigerator. All this in the quantity and quality as decided by the political process, paid for by taking your money involuntary. 

Similar to this problem is the fact that the decisions made in the political process are often categorical – instead of the more incremental market process. It’s either politician x or y.  Politicians themselves decide on policy a or b; there can’t be competing policies within a certain geographical area if it’s the task of government to take care of that policy. Alternatively; if you want to drive with a certain automobile, it doesn’t impair on me driving with another. If I don’t like a certain product, I’ll buy another one next time. If I don’t like the policies I get, I have to wait until the next election. And even then I can’t refrain from ‘buying’; it’s either participating in the political process and try to change it the way I want it, or not participating and still have to put up with the wide ranging policies it forces upon us! Take for example the discussion over the education curriculum. The freedom-oriented alternative is that, in general, parents decide for their children what the children should learn. Decentralized decision making process assures that people at least have the possibility of making decisions based upon their own estimates of the situation they are in, in stead of a certain governmental actor – be it at the local, state or federal level – for all children and parents. 

Incidentally; it’s often heard that the market ‘fails’ because of the concept of negative externalities. I don’t want to belittle the real problems that can be associated with negative externalities, but shouldn’t we consider it a government failure when certain policies are enforced upon people who didn’t want government to legislate in those areas to begin with? Take the example above: it’s one thing to argue that we need certain mechanisms – be it by the state or by voluntary associations – to insure that children aren’t subject to abuse and are well taken care of. It is, however, another to claim that we need to regulate for all of the children everywhere exactly which kind of knowledge should be taught and which is deemed marginal or out right irrelevant. 

Ignorance and Irrationality

A common criticism of the market is the problem of inverse information problems, i.e. the producer knows way more about a certain product than I do and so he can trick me in believing that the product is superior than it actually is. This is true in some sense, but it isn’t impossible to get around these problems: consumer reports, comparing to alternatives and trademarks are ways around this. This lack of knowledge is, however, also problematic in the political area: do you know every decision your representative is making? Do you know all laws that come from the political process? You probably don’t know about the way your cell phone or television was made either, but it doesn’t matter that much: you just buy the outcome. If you’re not satisfied, you can try again later. But in the political process you never buy the outcome; you always only select the person that has (some) influence on the decisions. So in order to make a correct estimate, you need to know whether or not he was sincere or not. And that requires a whole lot more information. But the problem is: the costs of attaining this information is pretty high and the benefits is really small (because you have only one vote). No wonder H. L. Mencken said: ‘Democracy is a pathetic belief in the collective wisdom of individual ignorance’!

There is however another problem, which was recently well argued for and documented in ‘The Myth of the Rational Voter’ by Bryan Caplan. The essential argument is that in politics the costs for certain mistakes isn’t that high. An example might illustrate this. How many people do you know that believe that they can fly if only they jumped from a cliff? Probably not that many, because the possible costs associated with this belief might easily become very high. But suppose one has beliefs with no strings attached, i.e. that have close to zero costs in having. People are often completely mistaken concerning certain historical data, believe in urban legends, etc. There is nothing wrong with this, but the key issue is this: when the costs of having a certain believe is high, people will have less of it. When the costs are low, more people will have more of it. That’s why Caplan coined the term ‘rational irrationality’; it’s ‘rational’ to have certain mistaken believes because the costs associated with that belief aren’t that high. 
In politics: it’s almost universally true that no matter what your belief is concerning politics, the costs associated with it is almost zero. ‘Talk is cheap’ and especially concerning politics. You as an individual have only a very small impact on politics, so you’re ideas don’t really matter that much. But here’s the trick: what if, like the rational ignorance idea, we have a whole lot of people who, by themselves, don’t have that much impact on politics, and thus can have mistaken believes without bearing the costs? This will cause that the politicians, in order to satisfy the voters, will produce policies that they want, but will actually will have effects that they didn’t want – but failed to predict, because of their ‘rational irrationality’. See where this is going too? I’m not talking about a specific policy in this example: the purpose is to convey the idea that from an individual point of view it can be ‘rational’ to have mistaken believes about how the world works, but the democratic process will cause this to lead to a social suboptimal outcome! If we compare this to a market, where there is an increased tendency to bear the costs and reap the advantages of your actions, there will be a certain tendency to try to get your ideas on how the world works in order. Not to many people believe they can fly… 
How does he know? And why does he do it?

Even if we support certain policies, we still have to be weary of a lot of traps. First of all: supporting a certain policy means you think that you know for sure that money should be taken away or diverted towards certain means that people won’t support themselves by voluntary means. To the very least, I would say that a presumption in favor of liberty calls for a good argument why the voluntary interactions of people should be ignored. Not just because there is something morally dubious about enforcing something against someone’s will, but also from the familiar knowledge problem. How can we be sure that a certain policy will have the general beneficial consequences we hope or think it will have? How can we be certain that this policy will be based upon sufficient information to have good consequences? We should be weary when someone says that a certain modification or intervention in the voluntary actions of people will improve the general benefit – not to the very least that this might just be a rhetorical trick. 

The key issue to keep in mind is that the incentives for a politician – even if he means well, as I’m sure there are a lot – aren’t, in the first place, to create policies to do good for the general public, but to get re-elected. This might often mean that he needs the support of certain lobby groups, that want concentrated benefits for their members and disperse the costs out over the whole of society. If the steal industry lobbies for hundred million dollars in benefits – one way or the other – and the rest of the population pays for it, this means that the average taxpayer pays about one dollar, for a very big benefit for the steal industry. No wonder there are a lot of lobbyist in Washington, each arguing for their own benefit – no doubt all for the good of the whole population.

Another issue to keep in mind is that politicians never get elected by a hundred percent margin; they are only selected by the majority, so they need only to keep the majority on their side. It doesn’t take genius to understand that we will have different kind of policies when we have to please everyone than when we only have to please a majority. Given the fact that the wishes of this majority is (at least) partly driven by the process of rational irrationality discussed above, the case for democracy suddenly looks a whole lot less attractive! 

Also bear in mind that it’s really easy for a politician to say: “I’ve created agency x or policy y to deal with the problem!’ (Obviously; this agency or policy gets a fancy name that sounds something like ‘protection agency/policy of y’.) He gets support because he has dealt with it. The possible negative effects are distorted towards the future and are hard to ascribe to the correct source – because of  the previously discussed knowledge problem.


I wish I could say I’ve given all the problems that are associated with the political process, but I can’t. It should be clear, however, that the democratic process is not a black box where voter preferences go in and automatically good policy comes out. It’s a process that generates decisions based upon politically constructed incentives, combined with knowledge problems and self-serving possibilities. So the next time somebody points out the government should be involved in x; it might be a good idea to ask him why he believes his idea will survive the perverse mechanism we know as the democratic process? 

Economics in One Lesson Ignored: Groen's RelancePlan

Er van uitgaande dat het recente krantenartikel in De Standaard accuraat is, is er een groot probleem met het voorstel van Groen. 

Wel wil Groen de lasten op arbeid verlagen. Daarvoor schuift de partij een Progressieve Werkgeversbijdrage naar voren. Het systeem houdt in dat eerst de werkgeversbijdragen gewoon worden berekend, maar dat er nadien een progressieve correctie op wordt toegepast. Voor de lonen die boven een bruto-referentieloon liggen, verandert er niets. Voor de lonen die eronder liggen, verlaagt de bijdrage met bijvoorbeeld 1 procentpunt per procent dat het loon onder het referentieloon ligt. De partij wil daar 500 miljoen euro in investeren.

Ik ben - natuurlijk - aangenaam verrast dat Groen de belastingen wenst te verlagen. Natuurlijk moet er opgemerkt worden dat een belastingsverlaging enkel en alleen aan de uitgavenkant kan gebeuren. Als je gewoon je directe taxatie verlaagt, maar de uitgaven gelijk houdt, dan moet het 'uiteindelijk' ook betaald worden.

Het grote probleem hier is dat een belastingsverlaging wordt omschreven als een 'investering'. Vooronderstel dat ik elk jaar 200 euro van jouw neem - zonder jouw toestemming. Plotseling beslis ik dat ik slechts 150 euro van je afneem: kan je dit dan een 'investering' noemen? Waarschijnlijk niet.

dinsdag 19 juni 2012

Vakantie literatuurlijst

Ter inspiratie van deze lijst zou ik hier graag de zomervakantie leeslijst uitdaging willen neerschrijven. 
Het punt is om de twee dagen 1 tekst/artikel te lezen en te bespreken.

Iedereen die mee wilt doen, laat maar een seintje. Dan zorg ik ervoor dat je ook op deze blog kan bloggen. Hoe meer, hoe liever.

De essays zijn een variatie van meer toegankelijke tot meer academische, goed voor een gezonde mix.

Maandag 2 juli

Woensdag 4 juli

Vrijdag 6 juli
When Justice Matters - David Schmidtz

Zondag 8 juli

Dinsdag 10 juli

Donderdag 12 juli
Markets Freed From Capitalism - Charles Johnson (pg. 59-82)

Zaterdag 14 juli

Maandag 16 juli

Woensdag 18 juli

Vrijdag 20 juli

Zondag 22 juli
Factual Free Market Fairness - Deirdre McCloskey

Dinsdag  24 juli

Donderdag 26 juli

Zaterdag 28 juli

Maandag 30 juli

Woensdag 1 augustus
Anatomy of the State - Murray Rothbard

Vrijdag 3 augustus
Rethinking Institutional Analysis - Vincent and Elinor Ostrom

Zondag 5 augustus

Dinsdag  7 augustus
Justifying the State - David Schmidtz

Donderdag 9 augustus

Zaterdag 11 augustus

Maandag 13 augustus

Woensdag 15 augustus

Vrijdag 17 augustus

Zondag 19 augustus

En dan beginnen de herexamens. :)