Limited Government, Government Workers

I thought I would share my comments on a current debate that I am having with friends over whether limited government supporters are hypocrites for taking government handouts. Here is what I had to say:

“The issue at hand on whether or not taking government benefits is hypocritical, while criticizing government to me can be explained through public choice economics.  Gordon Tullock from George Mason (University), who should have won the Nobel Prize in Economics with James Buchanan, wrote a very interesting article that relates to this subject. It is entitled “The Paradox of Revolution.” He uses an interesting example…

“Ruritania is governed by a vicious, corrupt, oppressive, and inefficient government. A group of pure-hearted revolutionaries are currently attempting to overthrow the government, and we know with absolute certainty that if they are successful they will establish a good, clean, beneficial, and efficient government. What should an individual Ruritanian do about this matter? He has three alternatives: He can join the revolutionaries, he can join the forces of the repression, or he can remain inactive.”

He then comes to the conclusion that the benefit of revolution is public good, while an individual joining would have a near-zero chance of changing the outcome. But also, if the revolutionary forces win, he will benefit from the public good even if he does nothing. And doing nothing decreases his chance of jail, injury, or death if he joins and the government wins or puts up a good fight.

Therefore, economically, his incentive is not to join the revolution as the low probability of success combined with the large punishment for failure is much higher then the public good that he himself cannot influence but in the .00001 percentage.

A comparable example would be what if in a presidential popular vote election your chance of dying was 1 out of 10 and your chance of changing the election is 1 in a million. The individual would not vote even though he knows if his candidate wins the country will be better off.

So how does this relate?

Any individual who benefits from the government whether its a politician, a farmer who gets subsidies, or an government bureaucrat has no individual incentive to quit his job even if his believes are that his job shouldn’t exist say for example. The government bureaucrat knows that even though the public good would be better off without the existence of his job, does not mean that him quitting would change anything at all. More than likely the government would hire someone else and would spend more money doing so.

One government bureaucrat quitting their job, or in the case above one Congresswoman refusing her government health care is not going to change the outcome of government health care. All it does is impose costs on the individual and benefits to no one.

So folks, this is exactly why big government exists.

We assumed in the example above that we knew with 100% certainty that the new government would be the best government the world had ever seen. And that is a big assumption. Most revolutions that occur in the world are merely trading one dictator for another. One could argue that, in fact, the American revolution is one of the only examples in history (maybe the Roman revolution from kings to republic) is the only non-example of this.

Limited government is filled with public goods, while big government is filled with individual handouts and this is why every limited government in the history of the world has turned into big government.”

Published in: on March 17, 2011 at 8:58 pm  Comments (1)  
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Rent Seeking during Wartime: A Smithian View of Military Action

This from the Wall Street Journal:

“Lockheed Martin Corp. spent nearly twice as much on lobbying during the first quarter of 2009 as it did during the previous three months as it aggressively campaigned to save key weapons programs ahead of a budget shakeup in April.

Lockheed — the Pentagon’s biggest contractor by sales — spent $6.41 million during the first quarter, up 97% from the prior quarter’s $3.26 million, according to company filings analyzed by the non-partisan Center for Responsive Politics”

Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

Lockheed Martin gains a lot of money from military action. It is in their best interest to do so. This is not to put complete blame upon the Corporations. They would not have the power to do this if their wasn’t a politicial system willing to allow this. This is why many Republicans will not talk about this. They are too afraid of abanding their business and corporate roots.

War is very costly. If the political system was not set up in a way in which allowed the benefits to be concentrated while the costs were spread out, we wouldn’t have this problem. Corporations, at stand alone, do not go to war with each other. We never see Coca-cola buying mercenaries to fight Pepsi. This is because they then have to face both the costs and the benefits. As long as their is a politicial system like this, there will be a chance of rent seeking to benefit from war.

The rest of the article is here.

~PCCapitalist

Published in: on May 14, 2009 at 12:33 pm  Leave a Comment  
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The Mafia has gone Green too

This from the Financial Times:

“Anti-Mafia magistrates in Sicily have opened a sweeping investigation into the wind power sector where local officials, entrepreneurs and crime gangs are suspected of collusion in the construction of lucrative wind farms before their eventual sale to multinational companies.

Italian and EU subsidies for the building of wind farms and the world’s highest guaranteed rates, €180 ($240, £160) per kwh, for the electricity they produce have turned southern Italy into a highly attractive market exploited by organised crime.

An earlier investigation into a case near Trapani in western Sicily resulted in eight arrests in February, leading to accusations of a suspected nexus between a leading Mafia family that offered money and votes in exchange for permits to construct wind farms.”

I am not sure what is illegal here but the Mafiais going to be in trouble for this. It seems that they are just trying to get on the good side of local officials and get these windmills put in place. Now of course if they are using force to get people to give their property or whatever over to them then that would be bad. All I see is that they gave money and votes in exchange for the permits. In the United States, we call this rent-seeking.

My favorite sentence of all:” Sicily’s Cosa Nostrais evolving and finding new business opportunities, including the renewable energy sector…”

The rest is here.

~PCCapitalist

Published in: on May 6, 2009 at 12:32 pm  Leave a Comment  
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How Public Choice Economists are different…

This is somewhat of a following up from my previous post “How are Libertarians different?” Like libertarianism people often throwaway the explanations of Public Choice Economics when it is offered to them. Public Choice Economics is often offered to people as “looking at politicians as rational self-interest people.” The next phase is that people look at you and kind of go “duh.” It is much deeper in that. They also study institutions and the incentives politicians face.

Often times when you talk to Conservatives and Liberal (even some libertarians) the most important thing is getting the right person elected to office. What they end up doing is getting new people elected and fighting the fake Liberals and Conservatives who are already in place. Since they are usually unsuccessful with dethroning the fake Liberals and Conservatives, they often do this over a long time horizon and it becomes a neverending cycle.

What the Public Choice challenge is, is how can you arrange the incentives so that any President good or bad will not completely disrupt the system. Other Public Choice Economists come to the conclusion is that you can in fact never get the incentive structures changed. Further more there are other Public Choice Economists believe that a competitive system which prevents an identity from becoming a monopoly on force.

This may be hard to imagine without an example. If you think about the current political system we are faced with. The politicians that get elected are going to be the people who find the best ways to spread the costs and concentrate the benefits. This means pleasing special interests. They will also be the best at making political deals and saying things without saying anything at all. We all know this because we see it every election cycle. What we want is the straight talking, dudley do the right thing politician. The problem is that the incentive structure favors those who do the opposite.

Electing saints is what most regular people do, while Public Choice is more concerned with having institutions that protect us even if we elect a devil.

~PCCapitalist

Self-Governance vs. Government (Available for Mac)

This from Wired.com:

“A colleague once defined “work” as “that which you accomplish while not distracted by the internet,” and he was onto something. Anyone who works on a computer  understands how easily personal communication (e-mail, instant messaging, social networks) can distract from the task at hand.

Eyebeam Lab’s Steve Lambert, creator of Add-Art and co-creator of the New York Times spoof, released an application over the weekend that solves the problem: SelfControl, a simple open source program for Mac OS X that prevents you from resorting to well-worn procrastination techniques by blocking access to websites and e-mail servers.”

Some people may not understand this and say why would one want to restrict your own freedom? The answer lies in what Nobel Prize Winning Economist James Buchanan talked about. This is a social contract. The founding fathers created the Constitution to restrain the government enough to protect it’s rights but not to take them away. Buchanan sees this as a risky but necessary institution to ensure freedom. So what does this have to do with Mac Software? James Buchanan would called this the “alarm clock” on Robinson Crusoe’s island. In other words, Robinson does not have to worry about anyone else but yet he still uses the clock to restrain him. As I agree with James Buchanan in a lot of ways, the problem lies in that we cannot always renew and create social contracts and often we are born in them without any input.

The second part to take away from this software is that it gives a good example of governance versus government. Government does not allow you to exit. In Buchanan’s world, people agreed to it unanimously and thus there is no reason to exit. In the software’s case a person agrees to the restrain unanimously and may exit at any time. Government does not allow you to do this. For example, if they were to not allow you to check your email from the hours of midnight and 4 am. People often do not see the distinction between governance and government and it is as simple as taxes are not voluntary, the software above is.

The rest is here.

~PCCapitalist

Dick Armey on Keynes and Hayek

This is a great piece in The Wall Street Journal written by Dick Armey. He shows great understanding of the field of Economics and how to apply it to the real world. Below I will put some of my favorite excerpts and you should read the rest:

“A father of public choice economics, Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians. It is also very difficult to turn off the spigot in better economic times, and Keynes blithely ignored the long-term effects of financing an expanded deficit.

It’s clear why Keynes’s popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it’s harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations.

….

What everyone should agree on is that the money has to come from somewhere, either through higher taxes, borrowing or printing.

If the government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If the government raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul. If the government prints the money, it will increase inflation, which will decrease the value of the dollar. That would, in effect, rob Paul to pay Paul back with devalued currency.”

I couldn’t have said it any better. These are the exact things I have been saying all along. Of course, one person saying them a few times isn’t enough. We need people to continue and carry this message. A fiscal stimulus will always be popular for politicians so what we need is to educate the populous of all of this.

The rest is here.

~PCCapitalist

Welcome to Redtape, America: California Gas Regulations

This from the Pasadena Star-News:

Dozens of gas stations around California are choosing to shut down rather than comply with a state mandate that would require owners to purchase new equipment to reduce vapor emissions at the pump.The requirement, known as Phase II in the state’s Enhanced Vapor Recovery Program, is set to go into effect in April. It requires gas station owners to individually purchase tens of thousands of dollars of equipment designed to prevent harmful vapors from escaping into the air when gasoline is pumped.

But smaller retailers say that the requirement puts an unfair burden on businesses that don’t sell enough gasoline to offset the extra cost – and that don’t contribute much to the problem in the first place.”

This is the thing that people do not understand. As it sounds good to have this bill on the book and it makes people feel good about the environment, all they really are doing is creating massive red tape and putting someone out of business. All of this is during a time in when people are already losing their jobs.

The Public Choice side of is that no only is the state raising the costs and therefore the prices, but they are reducing competition. I am sure he big business gas stations love this because it puts the little local gas stations out of business. Now environmentalists are usually against corporations, but little do they know they are contributing to a state granted monopoly.

The rest is here.

~PCCapitalist

Published in: on February 2, 2009 at 2:05 pm  Leave a Comment  
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The Future of Internet-based Phones in Europe

It has always been the easiest and most powerful way to break a regulation by using technology. Since the political process is full of so much rent-seeking, it is very hard to get a politician that wants to deregulate. He would have to have some other powerful interest group who probably but may not have perverse incentives for the deregulation.

Technology is also good at finding ways to make certain things more efficient. I overheard a conservation today talking about the quickly changing way on how you registered for classes. First, you stood in line and once you got up there you would grab a card that would represent your seat in that class. Second, he claimed that you used the phone and today you use the computer. This saved a lot of time and hassle.

When it comes to the technology of phones and cellular phones it is still costly to make international phone calls, but things like Skype and Vonage have made this much easier. They use internet instead of phone lines to make calls. They bridged the technology phone gap. Of course, cell phone companies do not want you to be able to do that and this would eliminate their international market. This from International Herald Tribune:

“European Union regulators are looking into whether mobile phone operators who block customers from making inexpensive wireless calls over the Internet are breaking competition rules.

The European Commission, the EU antitrust authority, has sent questionnaires to phone companies asking what “tools” they use to “control, manage, block, slow down or otherwise restrict or filter” Internet-based voice calls.

Some mobile carriers have blocked services that use voice-over-Internet protocol, or VoIP, which allows users to make calls over the Web. Companies may be seeking to stop customers from accessing applications, like eBay’s Skype, to defend voice revenue from the less expensive Internet services, Carolina Milanesi, research director for mobile devices at Gartner, the research company, said.”

Surprisingly, the European regulators are coming to the rescue of a industry that is efficiently beating another industry. Now I do not know all of the details of this and I do not know how the company is able to keep their customers from using these. I am just surprised the cell phone companies haven’t lobbied the EU to get these to be banned everywhere and the EU would go along with it.

We would expect without Europe meddling in the competitive market, some cell phone industry would come along and allow the users to access these services and then everyone would switch to this phone/internet industry. That would then force these companies to do the same.

~PCCapitalist

Published in: on November 12, 2008 at 7:38 pm  Comments (1)  
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Why the Republicans will cave on the bailout…

This was first published at NetRight Nation here.

People continue to talk about how the Republicans are tied to Wall Street and since they are fighting the bailout with the Wall-Street/Banking money in their back pocket they are going to cave in. Well, I have a better reason for why they are going to cave in. This is to save the 2008 Presidential election for John McCain.

It is a little something called the “Bread and Peace” model. The Bread and Peace model states that in a post-War time election the dependent factor of if the incumbent party person will be elected is based upon economic performance, in this case the incumbent party candidate is John McCain. The model uses two measurements. One is measured in growth in per capita income the other is the number of deaths in foreign wars that are not sanctioned by a formal Congressional declaration. Which are Korea, Vietnam and now Iraq. The model itself with the equation is a little more complicated but this is the basic idea.

According to this paper each percentage point of income growth equals bout 3.6 percent increase in votes. Of course, the last quarter of growth has a bigger effect. Every 100 fatalities of U.S. Military personnel will decrease 5 percentage points of votes. Here are the elections mapped out:

On one side of the chart we have incumbency percentage and the other is the per capita income growth. As you can see the two wars threw the economic stats off in 1952 and 1968.  That means that the economic factor can be a good guide of the winner of the election except in major war times. As we would expect the war at those times lowered the incumbent vote %. This means that the 2008 election will depend upon the economy and be discounted by the deaths in Iraq.

Over the first twelve quarters of President Bush’s administration growth of personal income was 1.04%. It is below the average of 1.8%, which has been the post-War average, but it doesn’t rule the Republican Party out of being re-elected to the Presidency. Of course now the economy has weakened and the deaths of the war are somewhere above 4,000, this is obviously a problem for Republicans come November.

With the fiscal stimulus package being passed and being a short term fix for growing income per capita. Hibbs believes that we will probably see growth rates equal 0% to balance out the current mess. I think we might even see lower. So if we assume that the deaths in Iraq reach 4,300 since they have slowed since the surge, then it will still keep the election close. Here is the analysis Hibbs does:

This chart shows the different results of the Presidential election depending upon the growth rate. This basically says that if the economy grows around 2 percent and only 4,100-5,000 U.S. soldiers die in Iraq then he will win. If we grow less than two percent then John McCain is not going to be elected, but not by much.  This will still be a close election. This model is a simple one and doesn’t account for much of anything else. While we say that it is important to keep in mind that it has been a good indicator of election results.

So what does this have to do with the bailout? Well the bailout like the fiscal stimulus package will also have a short-term economic boom effect. The stock market will go up and people should have more money to spend. This is not quite as direct as the fiscal stimulus package but if the Republicans continue to hold up the bill they will kill John McCain’s election. Purely based on economic factors.

Now the Republican Party is faced with a dilemma. Do they stand with their small government/fiscally conservative/capitalistic free market values and continue to oppose the bailout? Or do they stand with John McCain and President Bush at boosting the economy in the short-run in order to hurt us in the long run but will help McCain get elected and Bush keep a legacy? Since the Republican Party has been more about getting Republicans elected than standing on principle lately I would imagine when the bet is called they will fold. Of course when it is all said and done everything will be blamed on Bush, while the Congressmen will go back to their constituents and saying they voted against the bailout.

Hibbs, D.A. (2008).Implications of the Bread and Peace model for the 2008 Presidential Election. Public Choice 137: 1-10. DOI 10.1007/s11127-008-9333-7

~PCCapitalist

World Anarchy?

Peter Leeson’s article on “Efficient anarchy” from the Public Choice Journal Volume 130 puts an interesting spin on the analysis of an anarchist state.

Where does anarchy work?

He states in small governments and large governments.

There have been a groups of people that we have been able to study that have anarchy. That when the groups are small the costs outweigh the benefits of government. Now he goes on to say that these societies are small, all the people in them have the same productivity, all prefer the same things, they all make about the same amount of money, and they are close-knit. This is why Leeson believes that small groups work with anarchy.

Now what I really found interesting is that we technically have World Anarchy.

There is no governing body of the world. (please don’t even try to say the UN.) Now there have been attempts to make a international court and such but there is no government that puts the same laws on Japan as it does Chile.

This is because the costs are just to great to create a world government. Obviously, the internet and other telecommunications have lower that cost but it is still too high. Not to mention, that the people would be very diverse and have a different set of beliefs.Look at Europe, the European Union can’t even get along. Britain still has a completely different currency.

Leeson points out that whenever we do see a hint of government it is through international trade and most contracts have arbitration clauses. But the companies have been able to settle the disagreements without a court system or even a war.

This begs the question when does a anarchy become to big in the first case and two small in the second to form government?

I know what Professor Rustici would say…. as soon as someone would want to enslave workers to produce for them so they can relax on the porch…

~PCCapitalist

Published in: on November 19, 2007 at 6:32 am  Leave a Comment  
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