Arnold Kling  

Outline for a Talk

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Liberty and Me... Markets for Everything, Includ...

To be given next month, not open to the public, on the widely-unread Unchecked and Unbalanced.

1. We are in the midst of three crises--a financial crisis, a political crisis and a sovereign debt crisis. I will propose that they have the same source and the same solution. The source is the discrepancy between dispersed knowledge and concentrated power. The solution is competitive government.

The rest of the outline is below the fold.

1a. The financial crisis is the collapse of the asset-backed securities market in general and the mortgage-backed securities market in particular. In terms of the Monty Python dead parrot routine, the U.S. mortgage market is being nailed to its perch by the Fed and by a fully-nationalized Freddie and Fannie. The government today is providing mortgage loans on terms that are more lenient and under-priced for risk than was the case even at the wildest time in 2006. The financial regulatory community and Wall Street are assuming that at some point the parrot will be able to fly again. That will never happen.

1b. The political crisis is the emergence of irreconcilable differences. Both political parties are in the throes of reformations. On the Republican side, the Tea Party is responsible. On the Democratic side, the reformation already took place. The equivalent to the Tea Party is what is known by various names such as the Democratic Wing of the Democratic Party (DWDP. The DWDP vetoed Hillary Clinton's nomination for President. Even if Barack Obama himself is a centrist (a claim made repeatedly by famous columnists with first name David and first initial of last name B), his legislative accomplishments represent compromises not between Democratic and Republican centrists, but between Democratic centrists and the DWDP.

It appears that the 2010 election will strengthen both reformations. The Tea Party will gain inside the Republican Party. And my guess is that the Democratic loss of seats will be among centrists, leaving the DWDP even more strongly in control of the Democrats in Congress.

The center is weak to begin with. Look at the polls on public confidence in Congress. Look at the decline in market share of the traditionally centrist media outlets, such as urban newspapers, the weekly news magazines, and the nightly news of the three major TV networks.

1c. The sovereign debt crisis lies ahead. The financial crisis has made a sovereign debt crisis more likely by causing the U.S. to run large deficits at a time when it ought to be accumulating surpluses. It is also more likely because of the political crisis, which makes it difficult to see how a coalition can be assembled to address entitlements and tax changes.

2. The cause of all these crises is the increased complexity and diversity of our society, brought on in large part by the emergence of computers and the Internet.

2a. CEO's at large financial institutions are overseeing empires that are more complex and sophisticated than they can understand. Regulators are even more badly over-matched. The securitization process throws out too much local knowledge,

2b. The communications revolution, particularly the Internet, has brought diverse political ideologies to the surface. Both reformations have been fueled by grass-roots activists taking advantage of alternative media and peer-to-peer communications.

2c. Factors that are pushing us toward a sovereign debt crisis included demographic realities and technological trends in health care spending, which are not amenable to centralized control.

2d. We are living in the era of expert failure.

3. The solution is to have government operate more like the Internet. That is, dictate very little from the center, and allow diverse organizations to compete to solve problems.

3a. Land and territory should matter less as determinants of government authority. Imagine the U.S. splitting into two sub-countries, one governed by the Republicans as reformed by the Tea Party and one governed by Democrats as reformed by the DWDP. Couldn't people choose their government without having to congregate into distinct territories? How difficult would it be for a Republican to be surrounded by Democrats and yet not have to participate in a Democratic social insurance program, a Democratic alternative energy program, a Democratic health care system, and so forth? Yes, the two sub-countries would need a common defense and they would need to agree on a court system that would resolve disputes that arise from differences in the two systems. But "virtual Federalism," meaning political allegiances based on choice rather than location, is something to consider.

3b. In fact, one can imagine many different political systems that Americans might choose to be under, while allowing individuals to choose a system regardless of where they live.

3c. There are reforms that move us in the direction of competitive government without creating an entirely new political or Constitutional system. Allowing taxpayers to allocate some tax dollars directly; using vouchers for government programs; allowing local communities to secede from larger government entities.

3d. The goal of competitive government is to reduce the concentration of power. The idea is to make the political system more like the Internet, with its robustness and diversity.


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COMMENTS (9 to date)
Foobarista writes:

What happens when one of the "competitors" in one of these competing government schemes fails? Would its debts be taken up by the other competitors, or would there need to be some sort of bankruptcy scheme - or would governments be "too big to fail"?

The weakness in competitive governments would be in this area, particularly since at least some of the "government players" would be likely to run up all manner of fat pension obligations and fancy entitlements that would nominally have "the force of law" behind them. If the government that creates such obligations fails, what then?

Thucydides writes:

Sub-countries doesn't work. All the productive people would go into one, all the drones into the other, with nobody to pay for their entitlements.

Oliver Beatson writes:

Would an anarchist be able to abstain?

qudrupole writes:

What you are essentially describing is government with right of exit. The problem is, there a quite a few folks who would choose to exit, because they are currently compelled to contribute far more than they benefit.

To allow right of exit is to concede any serious program of redistribution. I don't think the DWDP is prepared to concede on that, and I don't think it's adherents can underwrite it for themselves.

topcat writes:

It may be true, as you argue, that the two parties are becoming more polarized. If so, it does not bode well for the Democrats since the people will divide about 2 to 1 in favor of the conservatives. The Tea Party is only the tip of the iceberg.

See Arthur Brooks' book, "The Battle."

Chris W writes:

You talk about the DWDP and the Tea Party as if it is a very symmetrical phenomenon for both sides of the aisle, but you don't talk about the Blue Dogs in congress which have proved to be a powerful conservative force in the Democratic party, especially on the recent healthcare legislation. It may be true that the president's core base is from the far left, but it was my impression that in fact both party's have been become more conservative in recent years relative to political parties in other parts of the world. Most of the polarization and paralysis in congress seems to me to have much more to do with the Republicans following out of favor so fast post-2006 and with the Great Recession following Republican rule. I expect that when Republicans regain seats this year and regain the trust of their base, that most of the extreme polarization will end.
And as for the polarization of news sources on the internet, I'd partially agree but I'd say that it's very probably that we have an availability bias to remember websites and news-sources that are from either the extreme left or right, and although I don't have any statistics whatsoever, I wouldn't be surprised to find a much greater commoditization of information and facts rather than an increased supply of polarizing opinions.
Comments, though, are a different story . . . :D

Rebecca Burlingame writes:

Regarding the second point about increasing complexity and diversity, probably a good time to present one idea. Think of how money originated and the economies that already existed before money, which primarily represents commodities, products and building capacity. For a long time people continued (culturally) with their own economies which capitalism benefited from, and continues to benefit from in the developing world. When we say capitalism 'destroyed' culture, what we really mean is that people gave up old systems of human exchange in terms of services voluntarily. We thought government could cover all that stuff. It can't.

Therefore, we need new non-monetary economies that preserve the freedoms of our new culture today, and when we take care of our own services again, wages can equalize globally and many business can return to the developed world.

Hugh Watkins writes:

I love this analysis.

As for the solution - the USA is made up of individual States that, once upon a time, had the freedom the act in limited competition with each other. Is this what you are thinking of?

@foobarista

"What happens when one of the "competitors" in one of these competing government schemes fails?"

Let's just follow California and find out.

Roger writes:

Arnold, you are really on to something with your prescription.

The only way out that I see is more constructive competition and free choice. If "progressives" really want government run solutions to all their problems, they need to be willing to pay for them. The conservatives aren't much better with their foreign wars of noblesse. In reality they want their valued solutions coercively paid by those not sharing their values.

The progressives aren't going to change or lessen their demands. The solution for the rest of us is to OPT OUT. This can be done by choosing a different political system or by choosing among different options by program. In fact, I would say the first steps would probably be easier to make via opt out provisions.

For example, allow options on Social Security. Just as I can choose to retire earlier with lower benefits, let me choose current benefits at higher tax rate, or lower benefits or higher retirement age at current rates. We should be able to opt out of Obamacare. We should be able to opt in to an HSA version of medicare.

With creativity and experimentation, we could find ways to allow individuals to opt out of most of the abuses of government authority (with abuse defined and funded according to each person's individual values). Eventually I can see choice and competition around overall political system, but that is a larger chasm.

The failure argument above noted by several commenters is weak. Better a segment of government fail than all of it at once. As it heads toward the cliff, people will bail out on it, and head to more prudent and sustainable political solution sets. Furthermore, if choice is by program, and each choice funds itself, then the price of poor choices will skyrocket.

This gets to the heart of the matter. People want to use exploitation to coerce others to fund their value choices against the other's will. The solution is for the rest of us to make it clear that they can pay any level of welfare/medicare/SS they want (for example), as long as they also want to fund it. By the way, they won't. As soon as they pay the tab for their values, we will see where their real priorities are.

I wish the Tea Partiers would take up some version of your idea.

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