Cosmic Gambling and Decentralization

Pair of Dice

The success of decentralized power is dependent upon our all being cosmic gamblers. Not only that, but this inherent gambling nature is also the reason that there has never been a better alternative.

In other words, people producing things and trading them free of restriction would not be successful if we didn’t have a process of wager-making to drive the way we analyze everything. This may also be the reason why historical attempts to impose control on production and trade have resulted in disaster. Earlier, I explained how I think this “wager” process works. I submit that whenever we form a belief about p, we are betting that p is confirmed. Simultaneously, we adopt the risk that p is shown to be false. Testing to find out when we are wrong is a crucial component of living life because it serves as the primary method by which we discover what works and what doesn’t.

If this is truly the current state of human beings, then it seems that we should want to have society situated to maximize the benefits of this pseudo-scientific process of testing. I propose that the way to maximize it is to adhere to the principle of decentralization — of limiting the restrictions on and forceful interventions in the lives of the people. This way, we can see more results from more individuals who carry on with their tests, expanding the realm of what we consider possible. And ultimately, the innovation that results from this general state of affairs would bring about the greatest degree of prosperity for society relative to the alternatives.

Suppose that I am an entrepreneur and I want to create a start-up company that sells an online platform with which people can record music. When I develop my idea, every single assumption I make is something that I would (literally) be putting my money on. I assume that my future product will be useful to enough musicians to be profitable. I assume that I will be able to successfully market my product to a wide enough audience. I also assume that I can come up with a cost-structure that enough people will be willing accept in order to use my product. Then I can test all those assumptions by, for instance, polling the opinions of a bunch of musicians with regard to what they think about this kind of product.

Remember, this wager-making process isn’t only applicable when developing a start-up. It is the way we test all our beliefs.  Say I want to go see “Man of Steel 2” in theaters, and I observe online that there is a show-time scheduled for 8:10 PM. Based on this information, I can develop a hypothesis that if I go to the theater, buy a ticket, and sit down in the assigned room, I will be able to watch Ben Affleck‘s performance as Batman on the big screen. Then I can go do all those things, look at my watch as it flips over to “8:10” around the same time the pre-movie trailers are starting, and I will be pretty confident that I was right to bet on my assumption.

A political system that promotes this behavior takes a hands-off approach when it comes to intervention in the lives of people. Using coercion to enforce certain regulations as the norm largely prevents people from placing certain wagers and testing them, which is arguably the most important action that benefits society. The more regulation there is, the more limited regular people are in this capacity.

For example, take the issue of occupational licensing. In essence, this is a piece of paper from a state government that gives one permission to work in a certain field. The reasoning behind such certification is usually related to safety. Lawmakers want to make sure that people are qualified so that they will not bring harm to their customers. This sounds great as far as the intentions are concerned, but in practice, the fact that interior designers, shampooers, florists, home entertainment installers, and more work their craft safely without licenses in plenty of different states is evidence that such licensure is unnecessary. What it effectively does is erect obstacles that delay or block entrepreneurs willing to test their ideas. As a result, there are fewer people in each of these fields that can incentivize one another to innovate through competition.

A more poignant example can be found in public schooling. The evidence is overwhelming that the predominantly public K-12 education system in the United States has been failing hard. While there are attempts at innovation, the structures of control are centralized into bureaucratic school boards. As a result, we have administrators — often with very little experience as educators — developing top-down plans to revamp broken systems. Furthermore, standardization seems to take precedence over models in which power is diffuse. The obsession with standardized tests and common core legislation limits the innovation that can take place at the grassroots level.

The best alternatives in the U.S. can currently be found in school choice initiatives like charter schools. These schools are publicly-funded but typically freer of government regulations. The idea is to allow teachers at these schools more room to test their ideas. Moreover, giving students more options to choose between different educational options provides more incentive for teachers to develop effective methods of teaching in order to attract students. Even in Finland, which has strictly public schools, the suggestion is that teachers need flexibility on the ground as opposed to top-down control: “…the public school system’s teachers are trained to assess children in classrooms using independent tests they create themselves. All children receive a report card at the end of each semester, but these reports are based on individualized grading by each teacher.” This hints that the success is not found necessarily in the method of funding, but in the decentralized structure of planning, which frees teachers from regulatory constraints.

The key point here is that central planning is simply antithetical to the wager-making process that is essential to understanding the world around us and thus, bringing about prosperity in society. People will always go about this process. The goal is to foster the conditions under which it can reach its maximum potential. I am convinced that those conditions involve as much decentralization of power as possible, both economic and otherwise.

The Inherent Plight of the Advocacy for Economic Freedom

Frédéric Bastiat

Frédéric Bastiat (Photo credit: Wikipedia)

In the Western world, it seems for the most part that we have accepted a certain dichotomy with regard to economic policy. On one side of the coin we have top-down control via intervention of the state, inherently coercive in nature. On the other we have individuals exchanging and contracting with each other absent coercive intervention. In the past decade, American public opinion about government power has shifted. Before 2005, Gallup polls showed that some 42% believed the state has too much power, while 49% believed it was about the right amount. The most recent polls show 54% of Americans now believe the government has too much power, and only 36% think it is the right amount.

It has become increasingly clear that the U.S. government has stepped outside of what a majority of Americans think is the correct role of government. The outlook of the Obama Administration so far in 2013 to this end has been especially awful (the NSA, the IRS, the AP scandal, the wild goose chase for Snowden, etc). One would think that it is an opportune time for liberty-based advocates to capitalize on the situation by pitching the argument for economic freedom. It may very well be. However, there are a few roadblocks that make the argument inherently difficult to pitch.

(1) Generally speaking, the argument for the free market is a long-run argument for more work and more individual responsibility. This goes against a strong inclination to take the most expedient path, which entails losing some individual responsibility and delegating some freedom to others in order to supposedly make things easier in the short-term.

I believe it is human nature to seek efficiency—to seek the path of least resistance (something I will substantiate in writing down the road). This is both a blessing and a curse. While it serves as the basis for innovation, it can also lead to short-sighted decisions that have unforeseen consequences.

It is much more expedient for me to take from others in order to fulfill my needs than to put work in, risking failure. When the government provides bailouts, welfare, or jobs that pay at a higher rate than market price, it is difficult not to accept. Why should I invest my time in risky business expansion, when it takes much less effort to succeed in a lobbying deal?

When the information is extremely localized, it almost seems rational to accept. However, when the pool of information is broadened to the point at which the source of that hand-out is discovered, the decision becomes morally difficult. If I figure out that what I receive originally came from a collective pool that everyone is forced to pay into through taxation, I may change my decision about what to do because my conscience begins throwing up red flags. But even then, that is no guarantee that I will change my mind. I could choose to flout my principle that it is immoral to use resources taken from others by force. I might even rationalize the decision by saying something to the effect of, “Well, I may as well take back what I put in. And besides, what’s done is done. I can’t exactly give the money back, and somebody has to use it.”

This can be a difficult calculation to make. The long-term benefits of forgoing short-term benefits is not immediately clear, and the responsibility is quite diffuse. This relates closely to my second point:

(2) It is easier to comprehend the good that comes from government intervention than the bad. Thus, the justification for more government intervention may consist of simple empirical and anecdotal evidence which can appeal to a wide audience, while the argument for less intervention requires more causally complex evidence and theory.

The first aspect of this is that responsibility is removed from any individual when property rights are removed. This makes it nearly impossible to comprehend what a person should do with property that “everyone” owns. This is called the Tragedy of the Commons. It ultimately becomes the case that no one owns the property. Taxes, as public property, invites use without discretion.

The Tragedy of the Commons helps to paint an excellent illustration of my second point that is two-fold. First, the ambiguous responsibility makes it more difficult to see the downsides to the policy, since it doesn’t appear at first glance that anyone is doing anything ethically wrong.  Second, concepts like this are not immediately comprehensible. While this theory is very pertinent, it takes some serious abstraction on the part of the individual. It requires one to think consciously about how the Tragedy is applicable.

On the other hand, typical arguments for government intervention require very little conscious thought. If I see that welfare helped my neighbor get out of poverty or that Medicare allowed for my grandmother to live longer, I will have an urge to chalk one up for government aid. These examples are clear and easy to understand. They can even be quantified in a very simple way: “The government helped x-people in y-regard.” It takes extra mental work to connect the longer causal chain required to recognize the transaction cost, the opportunity cost, and the unintended consequences of helping x-people. For most, it takes some dedicated time to grasp new theories—time that they would rather spend doing things they find more pressing or entertaining.

This relates to Bastiat’s concept of the Seen and Unseen. He provides an example, as follows:

“When a government official spends on his own behalf one hundred sous more, this implies that a taxpayer spends on his own behalf one hundred sous the less. But the spending of the government official is seen, because it is done; while that of the taxpayer is not seen, because—alas!—he is prevented from doing it.”

In other words, the product as a result of government spending is visible because, well, it happened. Meanwhile, the spending that could have happened otherwise by the citizen—the opportunity cost—is something that did not happen. Unintended consequences have similar optics. For instance, federal subsidies in agriculture seem great because they seem like they are helping people. However, when the subsides are such that only big corporate farms benefit, it takes extra effort to connect the causal chain to the smaller farms that have less opportunity to grow and compete with the newly advantaged corporate farms. The reason, put simply, is because the more equitable state of affairs that could have existed without the subsidies does not exist.

Thus, the argument for economic freedom is consistently framed as “idealistic” and “reactionary”—as an argument against the current state of affairs. The “idealist” characterization is based upon a faulty understanding of the term. The “reactionary” characterization should not be considered a problem, but many seem to take issue with it for no apparent reason. The correction of these misunderstandings would no doubt be a daunting task, but it pales in comparison to the last point that I wish to make:

(3) An entity that provides an increasing number of key services creates increasing dependency and therefore, aligned incentives with society to promote the growth of redistribution and control. Like a drug or severe affliction, the removal of the problem creates immediate and clear harm to the user. In similar fashion to the second point, the bad that comes from removing the government benefit is much easier to comprehend than the good.

Both the first and second problems are compounded in the third. In the first, I propose that it is part of human nature to seek the path of least resistance. Addiction is one of the primary manifestations of this, in which decisions are marked by short-term upsides connected with long-term downsides. Government handouts and services of all forms create the potential for a situation in which the recipients of aid become so accustomed to the benefit, that removing it would cause visible harm.

The addiction-mentality is fairly prevalent among big businesses who receive corporate welfare, for instance, but it also can be found in those who provide the welfare. Offering benefits for certain actions will incentivize people to partake in those actions (tax breaks). If it would be more inconvenient to lose those benefits than not for each individual recipient, then there would be reasonable incentive to develop ways to perpetuate and defend those benefits (lobbyists). If lawmakers get votes, funding, and political sway from the recipients, then they are incentivized to continue writing laws that give people benefits (cronyism). And the vicious cycle spins madly on.

What makes this position even more difficult is that the government also provides benefits to people who are supposedly in need. Am I saying that the impoverished are scum who have addiction problems?? How dare I!!

My answer is that it isn’t really for me to say. Being “addicted” to welfare wouldn’t be any more or less “addiction” than being addicted to coffee or smoking; a mild addiction to exercise could be a good thing. The problem is that the policy carries the risk of creating vast addiction—regardless of the recipients—that will culminate into a debt crisis and hurt everyone. Welfare to those truly in need does not concern me. Welfare for those who are not in need and welfare that creates more who are in need are my two primary concerns.

The above is not an immediately compelling side to take. The inclination of most every-day people is to believe that we should all try to help others in need. (At least, I would like to think that this is the case.) Attempting to explain how some of those people don’t actually need things is a much more difficult position to take, even if more reasonable. Attempting to explain how there are more effective alternatives for helping people in need is also difficult because of problem two; the current state of affairs is seen, and the alternative is unseen.

The way in which the argument can be twisted creates trouble for advocates of economic freedom in framing their stance. But the biggest issue at hand is more structural than anything. The way that government redistributes wealth misaligns the good that can come from the desire to self-sustain on the premise of free and mutual exchange. It adds new malincentives into the game that pressure people to take from a collective pot of debt and divert resources into defending their ability to continue doing so. The more that people fall into this trap, the harder it is for advocates of freedom to change minds because of addiction-mentality, other aspects of human nature, and knowledge problems regarding what is seen and unseen. Yet there is still some hope that individuals are beginning to recognize that centrally-planned economic policy is rarely the most efficient or the most equitable option.