Friday, July 8, 2011

More evidence on what government is.

In this post some commenters wish I provided more evidence for my assertions that government is an institution that is used to solve externalities and seek rents and prey on others.

Come on people, this shouldn't be that hard.

What are some things government produces or purchases to provide to the public?:
- National security (qualities of a public good)
- Interstate highways (network good - positive externality)
- Information for consumers (information asymmetry - negative externality)
- Basic research (positive externality)
- WIC (principal agent problem - negative externality of sorts)
- Medicare/Medicaid (lots of market "failures" that are reviewed here)
- Postal service (network good - positive externality - and now that it is less of a positive externality there are quite sensible calls to get rid of the Post Office)
- Education (positive externality, principal agent problem)
- Police protection (qualities of a public good)
- Macroeconomic stabilization (collective action problem/public good)
- Environmental regulation (negative externality)
- Deposit insurance (negative externality)
- The administration of justice (qualities of a public good)

What doesn't the government play any real role in producing?:
- Bread
- Furniture
- Laptops
- Appliances
- Cars
- Alcohol
- Books
- Music
- Herb gardens

You see a pattern here? I just thought through some major, obvious government goods and they all have obvious externalities or public goods qualities associated with them. I thought through some obvious normal goods that we come across on a regular basis with no widely remarked on externalities associated with them, and by and large these don't seem to be produced by the government.


Humans are not dumb. I know you all have this idea in your head that Keynesians think the common man is an idiot, but you're simply wrong when you say that (and more than a little condescending when you accuse us of it). I firmly believe that humans are not dumb and that thousands of years of interaction between humans has lead to the emergence and evolution of institutions that solve human problems. Humans know the market works. Humans know what the market is less capable of accomplishing, and they understand what things require more collective action to produce more optimally. There are lots of ways to act collectively. The state is one of many.

The apparatus of the state, over the entire course of its emergence, is obviously tempting to people. People can earn rents by bending the state to their own purposes. The state's use of coercion can be (and has been) used against innocent populations and citizens. The predation of the predation of the state has to be an essential element of any theory of government.

But clearly some states are more predatory than others. So what makes a particular political economy/state/non-state governing institution, etc. "robust"? Lot's of things. Normative regulation of the governing order (see Elinor Ostrom), clear residual rights contracting (see Oliver Hart), shifts in rhetorical treatment and understandings of certain actions (see Deirdre McCloskey), and meta-rulemaking or constitution writing (see James Buchanan). Each of these things are accomplished with a wide range of success. Successful institutions survive and succeed, unsuccessful institutions either die or they weaken themselves by preying on the market and other non-state institutions (the church, the family). The United States has been relatively successful in balancing these things for a number of reasons. Please note that the fact that the United States isn't some idealized form or perfect example doesn't invalidate any of this because I'm not talking about idealized forms - I'm talking about tendencies and roles of the state that all observed cases provide imperfect examples of.


I have one addendum that was not incorporated into my initial theory of the state: inequality. A big part of what the state does is address inequality. This isn't entirely an externality issue (although there are major reasons why we should think externalities exascerbate inequality). It also isn't entirely a predation issue, although it has similar elements to that as well. But it's a very strange kind of predation. The weak prey on the strong. Or - in a lot of cases - the strong weaken themselves to strengthen the weak. This is a major function of the state and of other non-state, non-market institutions (think soup kitchens, churches, charities, etc.). An easy way of addressing this now is just to say "the state tries to ameliorate inequality too", but that seems like a somewhat incomplete theory of this element of the state. I imagine it's worth thinking through some evolutionary biology too - it's my understanding that in other species a certain degree of egalitarianism is evolutionarily fit. If you have issues with egalitarianism on a philosophical or ethical level, please don't raise them here. That's another conversation entirely. My point here is to try to present a theory of the state. An adequate theory of what the state is seems like it has to be broader than (although still inclusive of) rent-seeking and predation.


This paper by Daron Acemoglu looks quite relevant. I seem to remember reading soem Theda Skocpol writing on these themes: Politics and Economics in Weak and Strong States.


  1. "National security (qualities of a public good)"

    National security is overhyped, particularly in the U.S.; most (99%) of what is claimed to be national security is anything but.

    "- Interstate highways (network good - positive externality)"

    There is really no reason to believe that these couldn't be provided by the private sector at far lower costs and much higher quality than exists today.

    "- Information for consumers (information asymmetry - negative externality)"

    Because, as we've seen, the calorie counts have been so useful to consumers. There is so much bullshit involved in this subject one could write several books on the subject. Almost all of what counts as providing information to consumers isn't that at all. Pretty decent example of government failure in action.

    "- Basic research (positive externality)"

    Or such is the claim; the claim is contested by data from studies undertaken by the OECD. I've provided you some links on this subject in the past.

    "- WIC (principal agent problem - negative externality of sorts)"

    Sorry, this doesn't even make sense.

    "- Medicare/Medicaid (lots of market "failures" that are reviewed here)"

    Such as? Medicare/Medicaid were created to drive down the costs for those involved in the program; they've not done that. Based on their own original goals they're failures. What they have been is a boon for those providing the services - they make a lot of money via these programs (much of for services never rendered - fraud is common in other words).

    "- Postal service (network good - positive externality - and now that it is less of a positive externality there are quite sensible calls to get rid of the Post Office)"

    Postal service censorship occurred from its inception; and since it was subsidized (and given a monopoly) it drove early market-based competitors out of business. Then it screwed up and let UPS and FedEx engage in a business they thought was only for rich people. The internet didn't kill the USPS; package carriers did.

    "- Education (positive externality, principal agent problem)"

    As Milton Friedman argued, most of what passes for education really isn't a positive externality; like most government programs in other words it has outgrown its usefulness.

    "- Police protection (qualities of a public good)"

    Talk about an oxymoron.

    "- Macroeconomic stabilization (collective action problem/public good)"

    Another oxymoron.

    "- Environmental regulation (negative externality)"

    A bunch more bullshit here; there's been a lot of work done on this subject and most of what the government does here is either overkill or it is related to agency capture.

    "- Deposit insurance (negative externality)"

    Which leads to all manner of moral hazard problems.

    "- The administration of justice (qualities of a public good)"

    Overrated and riven with the problem of overcriminalization and thus the collapse of the rule of law.

    So, in sum, most of what is claimed to be a public good either isn't or it is way, way over sold as such. We could reduce what the government does in these areas many fold and still capture whatever real externalities exist in those areas.

  2. "Please note that the fact that the United States isn't some idealized form or perfect example doesn't invalidate any of this because I'm not talking about idealized forms - I'm talking about tendencies and roles of the state that all observed cases provide imperfect examples of."

    Given this line of reasoning just about any polity could be justified - after all, nothing is ideal, blah, blah, blah.

    But you're right, some governments are greater kleptocracies than others; the U.S. isn't as bad as say Nigeria, but it is worse than say the Bahamas. That's really no justification for government though.

  3. This comment has been removed by the author.

  4. re: "Given this line of reasoning just about any polity could be justified - after all, nothing is ideal"

    Justification has nothing at all to do with this conversation, Gary. I'm not making a claim about justification. I'm trying to explain the emergence of this institution. This is precisely why thinking in terms of ideal forms is useless for what I'm trying to do here.

    If you want to challenge the idea that government as an institution is justified, that's an entirely different conversation.

  5. What doesn't the government play any real role in producing?:

    "- Furniture
    - Laptops
    - Appliances
    - Cars
    - Alcohol"

    There are government owned manufacturers of all these things somewhere around the world (even in the U.S. - witness the government involved in GM & Chrysler).

    "- Books
    - Music"

    Ditto. Indeed, the U.S. governments are heavily involved in the book trade because of the U.S. government monopoly on education. That's partly why we have these stupid book wars over evolution every few years.

    "- Herb gardens"

    I've been to government owned and operated herb gardens (they were generally part of larger public gardens).

  6. Gary -
    Isn't it interesting that humans have derived deliberative, contestable institutions to provide controversial goods that raise these questions, but they've derived straightforward exchanges for goods that are not as controversial?

    Pretty smart for a hairless ape.

    "Smart" is too teleological, of course, but you know what I'm getting at. Pretty evolutionarily fit.

  7. No, you are trying to justify the institution. Your argument is like this when one boils it down: "Hey, look at all these great things the state does which we couldn't outside of the state."

    The libertarian response is: "Almost all of what the state does is overhyped, most of it could be done by the private sector, and much of it doesn't need to be done at all."

    In a nutshell that's what you always seem to be arguing against.

  8. Gary, if you want to start another crusade to dig up all public herb gardens, I will be very confused, but in the interest of solidarity and good will I'd actually support you.

    Don't you think the thrust of my point still stands?

    Why do we use the market or other non-state institutions to allocate THOSE things, relative to things like education or roads or national security?

    You are STILL looking for ideal forms. Who cares if the government has an herb garden in some park. Do you realize how miniscule public herb production is compared to total American herb production?

    Let's look at the patterns. Are you really this unable to see patterns and draw inferences?

  9. Gary -
    We occasionally do get into discussion justifying or not justifying government. This is not what I'm doing here, which I thought I was clear about in the post.

    As I said in a post to you yesterday - if you want to go on a crusade this is not the right venue for you.

  10. "Isn't it interesting that humans have derived deliberative, contestable institutions to provide controversial goods that raise these questions..."

    I'd say that is a bug not a feature. Almost all of what are considered "controversial goods" ought not be. What the state and the legal regime in other words tend to support and provide sanction for are a bunch of very boneheaded about "fair prices," what is and is not "morally appropriate," etc., along with of course regimented educational regimes, etc.

  11. re: "Almost all of what are considered "controversial goods" ought not be."

    Gary - it's precisely that you think this and others don't that MAKES IT A CONTROVERSIAL GOOD.

  12. Daniel,

    Public education is in significant part about indoctrination and that goes back to the early republic. This is why it remains the subject of so much controversy - various ideological factions want to have the right to indoctrinate in the way they prefer.

    "Let's look at the patterns."


    "What doesn't the government play any real role in producing?"

    You weren't to my knowledge talking about patterns before. Of course I observe patterns too; and those patterns illustrate my libertarian perspective.

  13. No, what makes it controversial is that the state provides it. Once something is given up to the private it tends to become far less controversial.

  14. re: "You weren't to my knowledge talking about patterns before."

    Sorry - that's precisely what I was trying to communicate. I had originally written "what doesn't the government play any role in", but decided to change it to "what doesn't the government play any REAL role in". i.e. - any significant or substantial role. Good that we're on the same page now.

  15. Anyway, you'll have to excuse me, I need to go worship before the altar of Ayn Rand I've erected before I get my day going. ;)

  16. I'll have to write an essay in response to Krugman and Arrow now. Do you know of any responses that may have already been written to Arrow's paper?

  17. Hoppe does a great job demolishing the public goods argument in Economics and Ethics, chapter 1.

    For the record, I just finished his book Democracy a few weeks ago, and it is really quite good. You ought to check it out.

  18. Hoppe never did a good job of demolishing anything.

    And the government certainly has played a role in every area of computing. The only controversy regarding this is some people in economics.

    Question: Do you guys think the government played no role in open-standards for the Internet after the NSA no longer controlled the backbones?


  19. There is really a fair amount of mythology associated with the creation of the internets by the government. Indeed, the NSA never, ever had anything like a monopoly on the "backbone" of the internet. That is a "just so" story that doesn't hold up to analysis.

  20. That really wasn't the question. But the NSA did control the backbones and commercial activity was actually banned while they were getting things going.

    But anyway, yes, the FCC and many other things play a role in how technology gets to the consumer. Of course, the market itself is often heavily standardized, so that manufacturers often had to resort to daughterboards, riser cards, and so on, just to get their technology through. Look at all the specifications and stuff the industry goes through to get a new standard to the market.

    Anyway, the point is the internet wasn't just "handed over" to the private market.


  21. Sorry, i meant NSF (national science foundation), not national science association, backbones...


  22. Anonymous,

    No, the NSF never had full control over the backbone of the internet - to be frank, given that the internet from its inception had an international component it couldn't have full control over it.

    Anyway, there were lots of private and public players involved in its creation; UUCP was created by Bell Labs as an example of the former. TCP/IP was created at Stanford and then adopted by government agencies following that.

    The notion that the government created the internet is a very strong claim that is bandied about by a lot of people and it is a claim that just doesn't hold up to what actually happened in its development. In fact, long before DARPA got involved the theory of packet switching, the use of phone lines for one computer to call another computer (in one instance from MIT to a privately owned computer in California), etc. had all been thought up or developed or done. What DARPA did (along with private firms) did was to provide the money for what was already largely actualized technology and computer theory.

  23. SuccessfulBuild, some of us have actually studied the history of computing, and it is tragic that you do not know the difference between the vaccuum tube and transistor based computers of WW2 codebreaking era and post war era, and the microprocessing computers we have today.

    No, don't say one led to another. They have had parallel existence, and microprocessor development took place when early transistor/vacuum tube computers were being built as well.

    What is common between you and Gary is this armchair internet expert talk you keep doing. Bold statements such as "And the government certainly has played a role in every area of computing. The only controversy regarding this is..." send you on a good way towards the life of a TV pundit.

  24. re: "Indeed, the NSA never, ever had anything like a monopoly on the "backbone" of the internet"

    This is absolutely right, Gary.

    Everyone knows Al Gore did it.

  25. Prateek Sanjay,

    I have written a couple of papers on the history of the internets and at one time I even knew how to program in C. Happily I didn't have to live through the era of batch processing.

    Daniel Kuehn,

    To me, the government agency which did the most with regards to what we think of as the internets today is the National Physical Laboratory in Great Britain, not DARPA.

    My favorite video about predictions regarding the "internet" (the video doesn't call it that):

    From what I can tell, the video doesn't anticipate the P.C.; all that computing power, storage, etc. is out on a cloud somewhere.

    Now the questions someone always asks in these conversations - (1) what was the first computer you ever owned? (2) when did you first get on the internets (as broadly defined as you want to make that term)?

    (1) Amiga A1000

    (2) I do not consider a BBS to be part of the internet proper, so my first real experience with the internets was roughly in 1988 or 1989 (around the X-mas holidays so it is hard for me to pinpoint) when a friend of mine introduced me to IRC - my one real claim to fame in life is that I am likely one first couple of hundred people to use IRC and I am one of the many people who live chatted the coup d'etat and rise of Yeltsin in Russia.

  26. You characters have absolutely no idea what you're talking about.

    First of all, it isn't my "opinion" that the architecture was constructed during the first generation of computers, it's a computer science FACT. Why do you think computer scientists divide the generations the way they do?

    Second, the ENIAC and other computers were the foundations (or arguably the ABC, although Honeywell v. Sperry, the case often cited as "proof" it was the ABC rather than the ENIAC was more of a political decision). This is the conclusion of Brookshear in "Computer Science An Overview: "From that point on (i.e., the invention of the eniac etc.), the history of computing machines is largely that of advancing technology."

    Patreek apparently knows more than a standard computer science textbook that has gone through at least 11 additions. Many computer science students are now required to take a "first course" type of computer science course demonstrating what early computers and early programming was like.

    In fact, I would actually argue the true model for modern computers is the EDVAC, which came to be recognized as the Von Neumann Machines. It was also an electric computer which had the used the stored program concept.

    The importance of the ENIAC can be shown by the Differential Analyzer. So you have differential equations like x^2(d^2y/dx) + x(dy/dx) + y(x^2 - n^2) - 0, and a differential analyzer could substitute any n and yield all the other variables in the equation. What it showed was that if you wanted something fast, you had to make it electric. Hence, why the ENIAC was the big jump in computing power in history. The EDVAC, for example, could be programmed to perform many different functions as well, like logarithms, bell curves, etc., rather quickly.

    The criteria for the modern computer is basically:
    -An input device
    -A central processing device (a device that decides what operations to do)
    -An output device
    And that was all laid out BEFORE the microprocesser.

  27. And the Internet was certainly invented by the government, not to mention HTTP and the web as well. I mean, this is standard history:

    The USSR's launch of Sputnik spurred the United States to create the Advanced Research Projects Agency, known as ARPA, in February 1958 to regain a technological lead.[2][3] ARPA created the Information Processing Technology Office (IPTO) to further the research of the Semi Automatic Ground Environment (SAGE) program, which had networked country-wide radar systems together for the first time. J. C. R. Licklider was selected to head the IPTO.
    Licklider moved from the Psycho-Acoustic Laboratory at Harvard University to MIT in 1950, after becoming interested in information technology. At MIT, he served on a committee that established Lincoln Laboratory and worked on the SAGE project. In 1957 he became a Vice President at BBN, where he bought the first production PDP-1 computer and conducted the first public demonstration of time-sharing.
    At the IPTO, Licklider got Lawrence Roberts to start a project to make a network, and Roberts based the technology on the work of Paul Baran,[4] who had written an exhaustive study for the U.S. Air Force that recommended packet switching (as opposed to circuit switching) to make a network highly robust and survivable. After much work, the first two nodes of what would become the ARPANET were interconnected between UCLA and SRI International (SRI) in Menlo Park, California, on October 29, 1969. The ARPANET was one of the "eve" networks of today's Internet. "

    What "Gary" wrote is a bunch of unsource nonsense. I don't care that he "programs in C." (And by the way multics had a lot of DoD funding and Unix itself was an offshoot of both AT&T, GE and MIT.)

    All standard, history of the computer stuff that is disputed only by economists playing pseudo-intellectual on the internet. Lol. probably couldn't even write a game of gofish in C. Port this to C:

    I bet you couldn't even do it.

  28. And the NSF created the first high-speed backbone, very important for the internet:

    "The National Science Foundation (NSF) created the first high-speed backbone in 1987. Called NSFNET, it was a T1 line that connected 170 smaller networks together and operated at 1.544 Mbps (million bits per second). IBM, MCI and Merit worked with NSF to create the backbone and developed a T3 (45 Mbps) backbone the following year."

    And again, nobody answered my question which was what role did the govt play when they handed it over to the market, because nobody here knows. It was no accident that the Internet has open standards, and when the NSF controlled the backbones it was called "the Internet."

    As for Gore, he took credit for his funding of the internet, which can see here:

    On 06 June 2005, Gore was awarded the Lifetime Achievement Award "for three decades of contributions to the Internet" at The Webby Awards. In giving him the award, Tiffany Shlain (the awards' founder and chairwoman) stated that she "wanted to set the record straight [...] it's just one of those instances someone did amazing work for three decades as Congressman, Senator and Vice President and it got spun around into this political mess." [43] Gore, during his acceptance speech (limited to five words according to Webby Awards rules), joked: "Please don't recount this vote". [44]"

    Bob Kahn and Vint Cerf also acknowledged his role in the funding:

    As the two people who designed the basic architecture and the core protocols that make the Internet work, we would like to acknowledge VP Gore's contributions as a Congressman, Senator and as Vice President. No other elected official, to our knowledge, has made a greater contribution over a longer period of time. Last year the Vice President made a straightforward statement on his role. He said: "During my service in the United States Congress I took the initiative in creating the Internet." We don't think, as some people have argued, that Gore intended to claim he "invented" the Internet. Moreover, there is no question in our minds that while serving as Senator, Gore's initiatives had a significant and beneficial effect on the still-evolving Internet. The fact of the matter is that Gore was talking about and promoting the Internet long before most people were listening. We feel it is timely to offer our perspective. As far back as the 1970s Congressman Gore promoted the idea of high speed telecommunications as an engine for both economic growth and the improvement of our educational system. He was the first elected official to grasp the potential of computer communications to have a broader impact than just improving the conduct of science and scholarship. Though easily forgotten, now, at the time this was an unproven and controversial concept.


    But of course, economists with their unsourced claims know more than computer scientists. It's easy to make claims, it's much harder to source them. That's what you're forgetting.

  29. By the way, while we're on the topic, what exactly did Hayek do that had a direct effect on computer science?

    I still haven't seen where a computer scientist applied his work anywhere. I'll let Gary and Mattheus fill that one in.


  30. I'm not sure Hayek had a whole lot to do with computer science. His areas of influence were economics, political philosophy, and a swath of minor areas like sociology and psychology.

    But you already knew that I'm sure.

    And since you're so fond of sourcing, care to provide any evidence or back up your claim on Hoppe? I don't suppose you've read the chapter in question - or if you have, you found it so underwhelming as not to warrant more than a single sentence in disagreement. Care to elaborate?

  31. It's in the Wiki article. Probably Boettke or Horowitz put it in there. If Boettke wants to come in here and debate be I'll gladly debate him on it. (in much the same way many of the Mises "scholars" created and edited their own wiki articles.)

    And I've looked at the work of Hoppe and it's garbage. If people like you ever got power, you'd be worse than the Nazis because you try and enforce rules on society that nobody could live under. I've seen people at Mises advocating genocide of Africa and so on and the Mises forums are a joke and nobody will ever take it seriously.

    And what Gary said is just flat out ignorance. I posted an excerpt but it was deleted by the forum. Basically, it was ARPA that organized the internet prior to the invention of TCP/IP, arpa that first connected the University of Utah, Stanford, and two Universities in California to perform packet switching, and the official beginning of the internet occurred with ARPA (and then there were other things like MILnet which broke off and which I've documented). Among these networks was a need to interconnect them and during this time email was invented (Tomlinson, I believe). And the govt. continued to invent things into the other generations as I said.

    I've read numerous books on this and can gladly back it up. The fact is Gary doesn't know what he's talking about and doesn't understand the architecture.


  32. And I've looked at the work of Hoppe and it's garbage.

    So... I guess you're sticking with ipse dixit, then? No need to PROVE your insult - just say it's so and move on.

    If people like you ever got power, you'd be worse than the Nazis because you try and enforce rules on society that nobody could live under.

    People like me? And who am I?

    You're absolutely right. I would be WORSE than the Nazis because I think voluntary associations handle social problems better than the state. Nazis sound totally preferable to that.

    Daniel, I don't think you have to worry about people picking on Keynes' "endorsement" of fascism anymore because apparently I'm in favor of much worse!

    I've seen people at Mises advocating genocide of Africa and so on and the Mises forums are a joke and nobody will ever take it seriously.

    Right right, and everyone who ever comments on has the power to speak for all of us - because total genocide of the inhabitants of a continent is the proper philosophical stance to take for the non-aggressive libertarians!

    I'm not interested in your computer science (being that I'm an economist, and your field is worthless to me) so I really don't know who you're arguing with.

  33. LOL. You're an economist and you don't even understand the arguments for market failure? And if you knew anything about you're supposed discipline, you'd know that some computer scientists have helped economists along with their math (as have other "worthless" disciplines like physics).

    I'm not going to engage with some cultist who thinks economics is above serious disciplines.


  34. Who says I don't understand arguments for market failure???? Like Daniel is ALWAYS ready to remind me, just because I don't agree with a certain position (in his case certain Austrian positions) doesn't mean I don't understand it.

    I could easily say to you LOL You don't even understand Hoppe's critique of market failures.

    Blah blah, computers help economists. Whatever. They help statisticians and mathematicians. They help "econometricians" crunch their numbers. Not real economists devising theory.

    Next, please.

  35. LOl. One of them did help prove one of the most important theorems. And the early influence of physics on neoclassical economics is well known.

    "Real economists" = handful of Austrians playing pseudo-intellectual on the Internet. Obviously, you're just some little kid playing on the Internet.


  36. And what theorem was that?

    Most of neoclassical economics is theoretically bankrupt and practically useless. Marshall and Pigou did more harm than good to the economics profession at large.

    "Real economists" = Economists who devise theory to try to explain patterns of exchange in a society. Not statisticians who are handy with algebra.

    I've never denied the charge.


All anonymous comments will be deleted. Consistent pseudonyms are fine.