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Except that government, almost by definition, deals with goods that necessarily involve lots of externalities, involve a public good, or require transaction cos
by byrneseyeview 18y ago
Except that government, almost by definition, deals with goods that necessarily involve lots of externalities, involve a public good, or require transaction costs too great for any one entity to pay them.
Interesting. Most of the big expenses my government pays seem to involve some sort annuity scheme in which everyone is required to participate in the same retirement plan, even though the plan doesn't have nearly enough capital to handle its obligations. They also do health care, and they blow stuff up. It seems to me that most of the externality-based arguments can be taken care of with insurance and derivatives markets.
For example, if we decide it would be a Good Policy to make everyone eat an apple a day, because it would increase life expectancies by one year on average, we could just mandate that they all do it. But we could also make a bet on the average life expectancy in the US, pay people to eat apples, and pocket the cost differential. I'm not sure the transaction costs would be lower, but 1) the incentive to lower costs would be there -- no bureaucrat DMV ever got a seven-figure bonus for cutting costs, but plenty of bankers, consultants, and private equity executives have, and 2) it would have lower exit costs than our current democratic experiment.
But then what if that service itself breaches its agreement? Who do you go to?
David Friedman claims that they'd form little federations predicated on adhering to certain standards. If one company didn't follow through, it would have to renegotiate separate treaties with every other enforcement agency (and would lose lots of goodwill).
Democracy's a pretty shitty solution, but it exists for a reason. All the alternatives seem to be worse.
Yes, yes, and no. It would be pretty weird for Democracy to be exactly the wrong way to run almost every human institution, even though almost every human institution is run better than the average democracy.