This posting is Part IX in a series of postings about economic thoughts.
D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:

I am government…
Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well…
I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.
My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me…
I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.
…There have been successful efforts to restrain me for extended periods of time…In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.
Why then do I ever fail?…There must be an answer, because I do sometimes falter…my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?

Part X to follow…
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions

This posting is Part IX in a series of postings about economic thoughts.
D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:

I am government…
Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well…
I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.
My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me…
I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.
…There have been successful efforts to restrain me for extended periods of time…In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.
Why then do I ever fail?…There must be an answer, because I do sometimes falter…my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?

Part X to follow…
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions

This posting is Part VIII in a series of postings about economic thoughts.
This posting contains excerpts from a previous posting that addressed the often unspoken, but very real and deeply influential, incentives that drive government behavior – and how they compare unfavorably with the incentives that drive behaviors in a competitive capitalism system:
In the book entitled Government Failure: A Primer in Public Choice, Arthur Seldon writes:

Many economics writers and teachers still present economic systems of exchange between private individuals or firms as “imperfect” and requiring “correction” by government. Most teachers of politics, politicians, and political journalists still present government as well-meaning and able to remove such “imperfections.”

In spite of this view of government, Seldon notes:

Economic systems based on exchange between individuals and on selling and buying between firms usually correct themselves in time if they are free to adapt themselves to changing conditions of supply and demand. Government “cures” usually do more harm than good in the long run because of three stubborn and too-long neglected excesses of government: their “cures” are begun too soon, they do too much, and they are continued for too long.

Gordon Tullock, writing in the same book, explains the evolution of public choice theory:

Throughout the 19th and well into the 20th century, economists assumed that individuals were primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families. However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.
Economists changed this bifurcated view of human behavior by developing the theory of public choice…
We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so…

Jane Shaw, in her article entitled Public Choice Theory, offers a more detailed explanation of how there is such a mismatch between our expectations of government and the actual performance by government:

…Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest…Public choice economists make the same assumption�that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In [Nobel Laureate James] Buchanan’s words the theory “replaces… romantic and illusory… notions about the workings of governments [with]… notions that embody more skepticism.”
In the past many economists have argued that the way to rein in “market failures” such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as “government failure.”…
One of the chief underpinnings of public choice theory is the lack of incentives for voters to monitor government effectively…the voter is largely ignorant of political issues and that this ignorance is rational. Even though the result of an election may be very important, an individual’s vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has virtually no chance to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter…
Public choice economists point out that this incentive to be ignorant is rare in the private sector…he or she pays only for the [purchased item] chosen. If the choice is wise, the buyer will benefit; if it is unwise, the buyer will suffer directly. Voting lacks that kind of direct result…
Public choice economists also examine the actions of legislators. Although legislators are expected to pursue the “public interest,” they make decisions on how to use other people’s resources, not their own. Furthermore, these resources must be provided by taxpayers and by those hurt by regulations whether they want to provide them or not…Efficient decisions, however, will neither save their own money nor give them any proportion of the wealth they save for citizens. There is no direct reward for fighting powerful interest groups in order to confer benefits on a public that is not even aware of the benefits or of who conferred them. Thus, the incentives for good management in the public interest are weak. In contrast, interest groups are organized by people with very strong gains to be made from governmental action. They provide politicians with campaign funds and campaign workers. In return they receive at least the “ear” of the politician and often gain support for their goals.
In other words, because legislators have the power to tax and to extract resources in other coercive ways, and because voters monitor their behavior poorly, legislators behave in ways that are costly to citizens. One technique analyzed by public choice is log rolling, or vote trading. An urban legislator votes to subsidize a rural water project in order to win another legislator’s vote for a city housing subsidy. The two projects may be part of a single spending bill. Through such log rolling both legislators get what they want. And even though neither project uses resources efficiently, local voters know that their representative got something for them. They may not know that they are paying a pro-rata share of a bundle of inefficient projects! And the total expenditures may well be more than individual taxpayers would be willing to authorize if they were fully aware of what is going on.
…bureaucrats in government…incentives explain why many regulatory agencies appear to be “captured” by special interests…Capture occurs because bureaucrats do not have a profit goal to guide their behavior. Instead, they usually are in government because they have a goal or mission. They rely on Congress for their budgets, and often the people who will benefit from their mission can influence Congress to provide more funds. Thus interest groups…become important to them. Such interrelationships can lead to bureaucrats being captured by interest groups.
Although public choice economists have focused mostly on analyzing government failure, they also have suggested ways to correct problems. For example, they argue that if government action is required, it should take place at the local level whenever possible. Because there are many local governments, and because people “vote with their feet,” there is competition among local governments, as well as some experimentation. To streamline bureaucracies, Gordon Tullock and William Niskanen have recommended allowing several bureaus to supply the same service on the grounds that the resulting competition will improve efficiency…

From the previously mentioned book, Tullock continues by explaining how public choice theory impacts public policy expectations and the broad question of what role should be played by government:

But the different attitude toward government that arises from public choice does have major effects on our views of what policies government should undertake or can carry out. In particular, it makes us much less ambitious about relying on government to provide certain services…
A deep-seated feeling that government is imperfect carries with it two consequences. The first is that imperfections in the market process do not necessarily call for government intervention; the second is a desire to see if we cannot do something about government processes that might conceivably improve their efficiency…
A final area where knowledge of public choice has an effect on people’s views about policy concerns the behavior of government officials. The student of public choice is unlikely to believe that government officials are overly concerned with the public interest. Because they operate in an area where information is very poor (and the proof that the voters’ information on political issues would be poor was one of the first achievements of the public choice theory), deception is much more likely to be a worthwhile tactic than it is in the marketplace. Therefore, one would anticipate much more dishonesty in government. Indeed, granted that government officials are the only people who can check on the dishonesty of government officials, the problem of curing dishonesty in government involves an infinite regression. Private businesspeople, who deal with better-informed consumers than do politicians, are also subject to surveillance by public officials who, dishonest though some may be, very commonly have no personal motive to protect a particular private businessperson. The amount of dishonesty that has turned up in private business in spite of these inspections gives a rough idea of the almost complete uniformity of dishonesty in politics…

(more…)

This posting is Part VII in a series of postings about economic thoughts.
This posting contains excerpts from Chapter 2 of Nobel Laureate Milton Friedman’s 1962 classic book, Capitalism & Freedom in which he discusses the role of government in a free society:

…To the [nineteenth-century] liberal, the appropriate means are free discussion and voluntary co-operation, which implies that any form of coercion is inappropriate. The ideal is unanimity among responsible individuals achieved on the basis of free and full discussion. This is another way of expressing the goal of freedom…
From this standpoint, the role of the market…is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity…the fact that the final outcome generally must be a law applicable to all groups, rather than separate legislative enactments for each “party” represented, means that proportional representation in its political version, far from permitting unanimity without conformity, tends toward ineffectiveness and fragmentation. It thereby operates to destroy any consensus on which unanimity with conformity can rest.
There are clearly some matters with respect to which effective proportional representation is impossible…With respect to such indivisible matters we can discuss, and argue, and vote. But having decided, we must conform. It is precisely the existence of such indivisible matters – protection of the individual and the nation from coercion are clearly the most basic – that prevents exclusive reliance on individual action through the market…
The use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues on which people in any event have common views. Every extension of the range of issues for which explicit agreement is sought strains further the delicate threads that hold society together…Fundamental differences in basic values can seldom if ever be resolved at the ballot box; ultimately they can only be decided, though not resolved, by conflict…
The widespread use of the market reduces the strain on the social fabric by rendering conformity unnecessary with respect to any activities it encompasses. The wider the range of activities covered by the market, the fewer are the issues on which explicitly political decisions are required and hence on which it is necessary to achieve agreement. In turn, the fewer the issues on which agreement is necessary, the greater is the likelihood of getting agreement while maintaining a free society.
Unanimity is, of course, an ideal. In practice, we can afford neither the time nor the effort that would be required to achieve complete unanimity on every issue…We are thus led to accept majority rule in one form or another as an expedient. That majority rule is an expedient rather than itself a basic principle is clearly shown by the fact that our willingness to resort to majority rule, and the size of the majority we require, themselves depend on the seriousness of the issue involved. If the matter is of little moment and the minority has no strong feelings about being overruled, a bare plurality will suffice. On the other hand, if the minority feels strongly about the issue involved, even a bare majority will not do…
…a good society requires that its members agree on the general conditions that will govern relations among them, on some means of arbitrating different interpretations of these conditions, and on some device for enforcing compliance with the generally accepted rules…most of the general conditions are the unintended outcome of custom, accepted unthinkingly…no set of rules can prevail unless most participants most of the time conform to them without external sanctions…But we cannot rely on custom or on this consensus alone to interpret and to enforce the rules; we need an umpire. These then are the basic roles of government in a free society: to provide a means whereby we can modify rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play in the game.
The need for government in these respects arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men…
The major problem in deciding the appropriate activities of government is how to resolve such conflicts among the freedom of different individuals…
…the organization of economic activity through voluntary exchange presumes that we have provided, through government, for the maintenance of law and order to prevent coercion of one individual by another, the enforcement of contracts voluntarily entered into, the definition of the meaning of property rights, the interpretation and enforcement of such rights, and the provision of a monetary system.
The role of government just considered is to do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game…These all reduce to cases in which strictly voluntary exchange is either exceedingly costly or practically impossible. There are two general classes of such cases: monopoly and similar market imperfections, and neighborhood effects.
Exchange is truly voluntary only when nearly equivalent alternatives exist. Monopoly implies the absence of alternatives and thereby inhibits effective freedom of exchange…
When technical conditions make a monopoly the natural outcome of competitive market forces, there are only three alternatives that seem available: private monopoly, public monopoly, or public regulation. All three are bad so we must choose among evils…
In a rapidly changing society, however, the conditions making for technical monopoly frequently change and I suspect that both public regulation and public monopoly are likely to be less responsive to such changes in conditions, to be less readily capable of elimination, than private monopoly…
The choice between the evils of private monopoly, public monopoly, and public regulation cannot, however, be made once and for all, independently of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short-run effects of private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil…
Technical monopoly may on occasion justify a de facto public monopoly. It cannot by itself justify a public monopoly achieved by making it illegal for anyone else to compete…
A second general class of cases in which strictly voluntary exchange is impossible arises when actions of individuals have effects on other individuals for which it is not feasible to charge or recompense them. This is the problem of “neighborhood effects.” An obvious example is the pollution of a stream…
A less obvious example is the provision of highways…
Neighborhood effects impede voluntary exchange because it is difficult to identify the effects on third parties and to measure their magnitude; but this difficulty is present in governmental activity as well…when government engages in activities to overcome neighborhood effects, it will in part introduce an additional set of neighborhood effects by failing to charge or compensate individuals properly…Every act of government intervention limits the area of individual freedom directly and threatens the preservation of freedom indirectly…
Freedom is a tenable objective only for responsible individuals. We do not believe in freedom for madmen or children. The necessity of drawing a line between responsible individuals and others is inescapable, yet it means that there is an essential ambiguity in our ultimate objective of freedom. Paternalism is inescapable for those whom we designate as not responsible…
The paternalistic ground for governmental activity is in many ways the most troublesome to a [nineteenth-century] liberal; for it involves the acceptance of a principle – that some shall decide for others – which he finds objectionable in most applications and which he rightly regards as a hallmark of his chief intellectual opponents, the proponents of collectivism…Yet there is no use pretending that problems are simpler than in fact they are. There is no avoiding the need for some measure of paternalism…There is no formula that can tell us where to stop. We must rely on our fallible judgment…We must put our faith, here as elsewhere, in a consensus reached by imperfect and biased men through free discussion and trial and error.
A government which maintained law and order, defined property rights, served as a means whereby we could modify property rights and other rules of the economic game, adjudicated disputes about the interpretation of the rules, enforced contracts, promoted competition, provided a monetary framework, engaged in activities to counter technical monopolies and to overcome neighborhood effects widely regarded as sufficiently important to justify governmental intervention, and which supplemented private charity and the private family in protecting the irresponsible, whether madman or child – such a government would clearly have important functions to perform…
Yet it is also true that such a government would have clearly limited functions and would refrain from a host of activities that are now undertaken by federal and state governments in the United States and their counterparts in other Western countries…

Part VIII to follow…
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom