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Feedback from Kate Jones (5-10-02):

Communism did not fall because of bad production planning or bad leaders. It fell because it had bankrupted itself with anti-human counter-incentives.

People must be free to choose and work for themselves. A Soviet citizen given a couple of square meters of land of his own to work would produce far more than on a slave-labor collective farm. No one will put out energy to gain nothing for himself and see his output taken away to give to others. ("From each according to his ability, to each according to his need" is a prescription for slavery.) It's a different matter when one voluntarily gives of his substance to those he loves, such as a man working to take care of his family, pay college tuitions for his kids, etc. The all-important point is personal choice.

I am not opposed to having a government. Quite the contrary. But government must not be given any power to take anything — not the people's time, energy, money, property and freedom of choice. Government can only be given the limited power to guard and protect the citizens from those who would abrogate their rights and freedoms, domestic or foreign, and to adjudicate conflicting claims or breaches of contract. Period. Can these services be paid for other than by taxation? Yes, by user fees and voluntary subscriptions.

Privatize, privatize. I envision that major construction projects that government has been doing, like road building and space programs, could be all done by private enterprise, and instead of the government collecting taxes forcibly, the enterprises handling huge projects would raise the capital to fund them from the public at large, making them all into shareholders and answerable to all of them. With no taxes to pay, people could afford to show their support for ventures by how much money they were willing to put into them. And investing in these is entirely voluntary. The roads, for example, could all be toll roads so that only users pay. And the income from tolls would accrue to the builders' benefit and the investors' return on their investment.

And no laws shall be made that would allow a majority to deprive even the smallest minority — the individual — of any part of his rights.

Leaving any part of government's finger in the economic pie is like leaving part of a cancer in the body. It will grow, and grow, and consume more and more for itself. This is not like a vaccine where a little bit can stimulate sufficient immunity. Because when government is allowed to TAKE, it WILL. Bueaucracy kills.

Just as there is a separation of state and religion, there should be separation of state and school, and state and business.

How to deal with fluctuations in the market? Businesses need to be aware that change may come and learn when to hold, when to fold. When prices peak and start to decline, people don't want to accept that, so then protectionism is invoked. Rather than letting the market take its natural course, they try to skew the consequences and thereby set up the dislocations. Most people are unwilling to change and adapt once they've got a good thing going. They're willing enough to go along when it's easy, the flow going their way. They're not always ready to change horses. Like a baby whose pacifier is taken away, they respond with a tantrum when fat years turn lean. The tantrum is aimed at appealing to government to take a hand in redistributing wealth.

Kate's responses to specific passages:

"...the good sense to lend its Directory a helping hand. Wars, depressions, other emergencies — fairly quickly we've responded to them by setting up structures, either outside the market place or regulations within the market place, to contain the worst effects and bring conditions back toward the point where normal pricing could once again bear a rational relationship to the greater good."

This whitewashes expropriation. It is this "helping hand" that fetters the "invisible hand". "Normal pricing" can be interpreted any way the biggest pressure group wants, including rent controls, farm subsidies, bail-outs, minimum wage, etc., and any other social engineering the power structure wants to play with. This "helping hand" is hard to pry loose again.

"The free market cannot provide products and services whose benefits are indivisible, not without considerable direction from some other, larger, system operating from outside the marketplace."

This meta-level is NOT the government. Government is made up of individual human beings, of no greater wisdom than the individuals who run businesses, and often with less trustworthy motives. The meta-incentive is long-range security and larger context. Businesses living under the constant bombardment of new governmental edicts and rules cannot engage in long-range planning, for fear that all their efforts will be sunk. And government's power to fiddle with the value of money can create paper losses that can destroy a business.

"...feel obligated to look instead to the interests of their immediate stockholders, to whom they hold a clear and specific fiduciary responsibility, before thinking about the wider community."

In the context of long-range self-interest, these are not mutally exclusive; in fact, they are congruent. There is no conflict of interest between the well-being of a corporation and the well-being of the community from which it derives its income. Those two go hand-in-hand.

"In cost externality situations, things tend to get done whose cost to society as a whole is greater than the benefits to society as a whole — often far greater."

Unfounded claim. Needs specific supporting facts. But most such things are initiated by government. See the Golden Fleece awards, high points of government waste. The important point is that when private industry risks money on ventures that fail, it was a voluntary investment of their own funds. When government spends profligately, they do it with the seemingly infinite supply of free money they take from the citizenry, or they print it. The costs are borne by the people, and hardly anyone benefits except the bureaucrats.

"In benefit externality situations, things tend not to get done whose benefits to society would be greater — often far greater — than their cost would be, so that considerable well-being and positive opportunity are lost."

The fall of Communism was due to running it on this system. The individual gets nothing, and the benefits of "society" are also questionable, since society is only the aggregate of all those deprived individuals. Only those populating the power structure benefit with higher standards of living and access to goods the slaves can't dream of. Every dictatorship and totalitarian regime works this way. America's founders tried to protect us from going that way. Your proposal would reduce that protection by granting government powers it was never intended to have.

" ... ungoverned free marketplaces with their abuses and neglect of many real public needs."

Unfounded claim. Their income comes from supplying what people need and want. In a free market, unmet needs will find entrepreneurs who will jump in to fill that void. Venture capital would jump to support them.

"Neither government nor the free market economy is "good" or "evil." Each has a scope of situations and activities for which it is better suited,"

They are NOT equivalent. Government has a monopoly on physical FORCE. They can FORCE people to do things against their will, by threat of fines, penalties, confiscation of property, and imprisonment. The market economy can only persuade and appeal to what people want, thereby better serving their needs. What government is suited for is delineated in the Constitution and Bill of Rights.

"Yet as we have seen, left to its own devices, a free market does go awry in some situations."

No, we haven't seen. What, specifically? A truly free market has not existed yet.

"... people will be generally led to "do the right thing" because it is profitable for them to do so."

The preservation of the free market is the major incentive. Being at the mercy of changes the government can impose, moment by moment, leaves decision-making distorted, paranoid, short-range...

"... General tax on all classes of economic activities which result in pollution, in proportion to the seriousness of the pollution..."

This is not a tax, it's a fine.

"Those firms are exempted from that tax where they prove — with the burden of proof on the firm — that in this particular instance they in fact have prevented or stopped the pollution."

No, no, that means they are presumed guilty and must prove themselves innocent. You're turning the basic tenet of constitutional justice on its head.

"What if all income earned by private enterprise in space, if earned in the next ten years, were to be totally exempted from taxes? And if earned in the following ten years, to be partially exempted from taxes?"

Arbitrary time limits. Penalizes late-comers, who may not get geared up for research until new breakthroughs happen. There should be no taxes of any kind, ever, on space research and enterprise. The earlier return on investment is sufficient incentive.

" ...can anyone seriously doubt even that overall government revenues, even with that exemption taking a bite from tax revenues, would be very considerably higher..."

Higher government revenues must not become an incentive, or they conflict with private goals. We've reached a point where government considers most of its citizens' earnings as its own, it being a matter of laughable debate of how much the citizens will be allowed to keep, and with resentment of any amounts the government is "losing" when people find loopholes. Setting government as an adversary or ruler of the people is contrary to what the Founding Fathers established:  government for and by the people.

" ...give something like an extra 3% break on tariffs on goods imported from firms which are jointly owned by Israelis and Palestinians. Or by Irish Protestants and Irish Catholics..."

All tariffs, being moveable and changeable, are bad. They disrupt planning and disadvantage unfavored groups. You cannot mix private and political ownership. When incentives were given to minority ownerships in U.S., many companies would have their token "black" partner to qualify for those favoritisms. Or do these "goods" have to come from governmental co-ventures? Then private enterprise is discriminated against. Forced integration of opposing groups even among U.S. citizens was a painful, bloody, decades-long process. There must be better incentives than tariffs. Affirmative action, of buying only from co-ventures, is also discriminatory and has had backlashes in America, where hiring blacks over whites was rightfully seen as reverse discrimination. Forced social engineering is doing it the hard way. Let's look at your incentives instead.

Why do you think those ethnic conflicts exist? Ostensibly ideological, they are scrappling for control of resources: land and territory. When natives have something to trade and their potential trading partners would rather acquire it by conquest, a 3% tariff will not induce them. Who gains from maintaining unrest? Those expecting to win the big pot. So there is a vested interest in NOT making peace. You'll need a larger incentive to override that. And it can't be one where we pay off the whole world's warring factions with America's tax money. Remember also that the genetic program running is the one that says, Grow, grow, grow; no matter what you gain, it's never enough. Only a conscious effort of free will can override that. And incentives on a higher level.

Remember the movie, Independence Day? When the bad aliens attacked the earth, all the nations joined forces to fight them off. Do we need an external enemy before we can see our own benefits in each other's welfare? What if the unconscionable waste of resources dedicated to armanents were invested instead in construction and food production and research? The ages-old dream of plowshares, not swords; trade and collaboration, not conquest by force.

"...to make incentive-setting an efficient way to proceed..."

Artificially contrived incentives imposed from outside will not work in the long run. (Witness the disastrous dissolution of the Soviet empire in the Balkans.) They must be built from the very structure of the relationship and fundamental needs of the participants. With the history of treachery peoples have experienced, it will be even more difficult to find mutual ground and engender trust.

"A pure free market cannot serve us well,..."

Unfounded assertion. Never been tried.

"...the attempts to reduce government simply by cutting government always result in more government."

Cancers grow back. Trimming stimulates growth. Are you suggesting that by encouraging government growth by not resisting it, it will shrink naturally? No way. And cancers kill. What we have is the eternal polarity of the individual versus the many. Recognizing that "the many" are all individual beings, too, and that society is a name for an agreed-upon cooperation among all those individuals for mutual benefit, the fundamental incentive becomes obvious:  equal rights, equal freedoms, voluntary respect of others' rights and freedoms. It's the price of admission. Government's proper role is the protection of all members' rights, hence the military, police and courts. Criminals are defined as those who don't abide by the rules of respecting others' rights, including life and property. Don't give government additional powers, just make it do what it's supposed to, and it won't become a cancer that eats up the people it should be serving.

"... to address most of the public needs and concerns which government is meant to serve..."

Read the Constitution. Government has gone far beyond what it was "meant to serve".

I also submit that government's refraining from imposing incentives is not a legitimate incentive, either; it's blackmail.

But people do get the government they deserve. If, instead of eternal vigilance, they want to submit their fate and freedom to those individuals who work themselves into positions of power, then that's what they will get — a paternalistic government that ends up micro-managing every aspect of their existence and disposing of their every asset "for the greater good." It's one of those indivisibilities.


Win Wenger rebuts (5-11-02) and Kate answers:

Win:  In effect you've said that Adam Smith didn't know what he was talking about when he discussed indivisibilities and externalities, that these either don't exist (!) or that they don't have the effects cited. And that no evidence exists for such phenomena as our having poisoned our entire world, turning stretches of it into almost uninhabitable wastelands and endangering the rest, nor that industries and research firms in vast majority have foregone many farther-reaching, more general, basic science research opportunities in favor of the most concrete forms of applied tiddlywinks.

Kate:  Nature did a number on the planet all by herself, thank you, Volcanoes, forest fires, earthquakes, ice ages by turns depleted and replenished the earth. Early populations had everything there for the taking (hunter/gatherer mentality), or, once shortages appeared, for taking by conquest. As higher thinking functions evolved in response to need, exploration, migration, agriculture, social contracts and technology developed to stretch resources. It took long cycles of cause and effect to learn destructive behaviors. We're still learning. We're still like children in the chemistry lab, fiddling with forces we don't fully understand. Scientists, not government bureaucrats, are needed. Mistakes must be allowed to happen. Pooling knowledge, not tooling bombs, will find answers. It took thalidomide to teach about prenatal causes and effects. Long cycles...we need a long view, not just quick fixes. Emergencies drive the adaptation process.

Win:  In truth, if I saw a way to do away with, and to do without, government, I'd be more than happy to. Our sympathies there are strongly parallel if not identical. But we need more than a 't'is/t'aint to settle the issue of indivisibilities, externalities, monopoly power, control of information, and the various other issues which "the father of free markets," Adam Smith, cited as areas where private market incentive runs counter to, rather than congruent with, the greater public good. Remember, it was his main arguments and "invisible guiding hand," of the incentives in private free markets, that became the whole case for private-enterprise-based free markets.

Kate:   He helped, as did other philosophers and thinkers. People's greatest incentive is to serve their individual interests, which are best served by keeping others' interests as part of the context. On the meta-level of society, cooperation and enterprises based on collaboration achieve the greatest good. America's founders understood the great dynamic of all men having equal freedom to achieve in their own behalf, while respecting the same freedom of others. Equal freedom does not guarantee equal levels of achievement.

Property rights extend only to things that can be possessed. Excluded are those indivisibles, like air and water. Yes, one can collect and bottle and sell water from a spring or well on land one owns. One may not pollute water shared with others, such as rivers and streams, aquifers and the oceans, and not the air that others breathe. These weren't a problem for tiny populations, but once we're jammed shoulder to shoulder, the self-repairing cycles of the earth can't keep up. Long cycles before a critical mass is reached to make us change behaviors; we're in that process now. But let's not panic at short-sighted diagnoses...is our atmosphere really imperiled by — cow flatulence?

Actually, the earth will repair itself, just not perhaps to what humans need. I nevertheless predict a breakthrough of enlightenment to save ourselves and our life support system. Any enterprise that comes up with answers will prosper forever. The Internet accelerates information flow. It has transformed the world in just 10 years. We will find answers to secure the greater good for now and for the long run. The mere fact that we are talking about it here is a good sign.

Win:  You may notice that part of your argument makes my case for me on behalf of use of incentive. A further, closer look can make the whole discussion within the frame of incentive — what are "natural" incentives and what do they incentivize from case to case, and what would be appropriate compensatory incentives so that the incentivized private free market can address a far wider range of activities and situations without further interference. Extrinsic and intrinsic incentives, and an evolution between them (possibly a la Maslow), are among some of the other dimensions which could be usefully addressed.

Kate:   Absolutely. And the best incentive the government can extend is to keep out. That is what "laissez faire" means.

Win:  ...it might be impolite for me to observe that the main political party most identified with the desire to reduce government, and the cost of government, in its last previous tenure in the White House tripled the national debt in twelve years. The current Republican tenant has, in less than two years, moved us from a thumping two hundred billion dollar annual surplus to a thumping hundred billion dollar deficit with worse to come, and I don't think all or even most of that can be blamed on terrorism.

Kate:   They are paying lip service to the nice notion of "getting government off the backs of the people," but they don't mean to give up an ounce of power. They seek merely to con the people, giving them enough hope and air to breathe a little, so the yo-yo goes up again, before the next cycle of milking. The only difference between the Republicans and the Democrats is to whom they give our money.

Win:   We once yet again are seeing efforts to cut back government resulting in (or certainly immediately followed by) more government. It probably wouldn't be fair for me to say I can imagine what a round by a Libertarian administration would result in, but I think it is fair for me to suggest that we need to treat more effectively those matters which, traditionally, government has been called into play to correct, if we are to have much hope of cutting back government and the costs of government. We don't need to worry about letting the camel's nose get in the tent — his rear end, and the rest of the herd besides, is in the tent right now. Rather than lose the tent, I think we need to use incentives to get one camel after another out of the tent.

Kate:   I do hope you mean that we need to take OUT of government's clutches those matters which it was "traditionally called into play to correct". Otherwise you're just continuing to feed the wolf...

Win:   Incentives address the identified need areas in two ways that reduce government — they get the job done more efficiently, and they can move great swaths of present government activity out of government and into the free market private sector.

Kate:  I'd sure be glad to see that. Do it, baby.

Win:  ...government-based decisions, with incentives askew as is always the case in the political process and in bureaucracy, are poorly based, askew from the general public interest, and therefore should not be the basis for deciding and setting incentives to the private sector (or for any decisions!).

Kate:   Now you're making my case...

Win:   It is true that they are askew and to varying degree will necessarily remain so. However, were we to employ the system of incentives I suggest, our decision-making process would be less inflamed, and less driven into the irrational, so that I think it would be likely that we would begin making better decisions, more effectively serving the general public interest (and the range of private interests within that). Further, there are the guidelines like those I published in my little book, in setting levels of incentive from industry to industry. It seems worthwhile to

  1. Get such decisions as have to be made by government, made under better conditions, getting better decisions;
  2. have less costly government;
  3. have less government and less overt governing, and
  4. see a better job done on both the public needs government traditionally tries to address, and in fulfillment of those elements of public policy that our public, in its greater or lesser wisdom, seeks to pursue.

Kate:  I do not advocate doing away with government, only of having it mind its own responsibilities. Setting different incentives "from industry to industry" impels the whole corrupt system of procuring special favors. That is why I continually advocate non-government incentives. Those 4 declarations sound pretty vague, though they sound vaguely pretty. The best incentive is laissez faire.

See also comments by Jan Narveson and Frederick Mann.
Join the debate by emailing your comments to Win Wenger.

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