There’s path dependence all over the place. Reality is entirely path dependent. In fact, I see no distinction between “path dependence” and “causality”. Do you see one?
I think two other strong reasons as to why social institutions that rely on aggression are able to persist are moral hazard (which, despite its appearance, is not a normative concept) and adverse selection.
Begging the question, what exactly is “optimal”?
Wait a minute. More importantly than that, you’re the one who’s taking the Panglossian position – that this world is “the best of all possible worlds”.
You could get lucky and set a good Pigovian tax; of course, after the lessons of Coase, I’d rather governments try to reduce transaction costs.
Furthermore, I’m not necessarily arguing that the State is a wealth-generating machine; more simply, I am arguing that its costs are being efficiently minimized.
If we are committed to methodological individualism, we are assuming rational individuals are maximizing their payoffs. If that’s the case, then where’s the inefficiency?
I don’t think that’s necessarily true; State interference could fix market failures like asymmetric information or negative externalities.
Why is this a market failure? If people are maximizing their behavior, than obviously this doesn’t need ‘fixing’; they are just responding to the costs and benefits which are ‘there’.
I am asserting that there is an efficient level of government interference (that results from the strategic interaction of rational individuals); but, once again, from a theoretical economic standpoint, the results still are suboptimal. It’s like a giant Prisoners’ Dilemma: everyone makes their best move, but the outcome could have been better had other strategies been chosen. This is different than Stigler, since he never seemed to suggest market failure at all.
The concept of the Pigovian tax begs the question as to how “social costs” are defined, let alone how they’re presumed to be (objectively) measurable.
If its costs are nevertheless growing to the point where all present and future capital are consumed by it, what would you say then?
Are you committed to methodological individualism?
By your assumption above, if a moviegoer gets mugged on the way to a movie, then the most efficient way for him to have seen that movie must include getting mugged. Yet this moviegoer would disagree with you – he’d surely argue that not getting mugged while going to see a movie would be more efficient. So he was prevented from otherwise maximizing his payoff with regard to the movie.
Let me ask you a question: if you purchase a home in an area that might be struck by a tornado, would you call that decision “efficient” or “inefficient” when a tornado destroys the home?
P.S. I try use to “willingness to pay” to measure social costs. But I do believe in social costs: if you’re externalizing the cost of pollution, for instance, then you will pollute too much (a marginal social cost curve that is above a marginal private cost curve). Bear in mind, I do think it can be more efficient for “victims” of pollution to pay to have it stop (cf. Coase).
The total costs of any action. These costs are made up of private costs, which are met by the individuals concerned, and indirect costs, which are borne by third parties.
First, if you never miss a plane, you’re spending too long at airports. So yes, the person who got mugged on the way back from the cinema was acting efficiently given the expectations and the information available to them.
Second, do institutions really matter? There seems to be an presumption here that they do, and yet, in times considerably less prosperous there were institutions that may have been more liberal (England at some time point in time). Who says that institutions aren’t just the results of the expectations and technology at a given point in time? Just like some have argued that slavery was efficient for a long period of time and only ended when it became economically inefficient, who says that the same may not happen with the state?
Finally, a lot of the arguments here seem to be saying something along the lines of “institutional change is a public good”… which to me seems a little strange since people here will vehemently attack the theory of public goods under other circumstances. There are a plethora of ways in which the state can improve outcomes.
That’s different from how I’ve been defining “social costs”, which is simply “costs not met by the individuals concerned”. But no matter; thanks for the clarification. I take it you would refer to costs borne by third parties as just “(negative) externalities”?
By the way, why does “a marginal social cost curve that is above a marginal private cost curve” for something necessarily mean “too much” of that something?
Do you have any response to my answer to your question about the hypothetical house purchase? Can you answer my prior question directly?
Surely you saw where I asked whether you had any response to the rest of my post. Since you have apparently refused to respond to it, I’ll conclude that you can’t come up with any counter-argument(s) to mine there.
Who says I’m spending “too long” at airports if I never miss a plane? I’m not.
I stated clearly that the hypothetical mugging takes place on the way to the theater, not afterwards. Furthermore, the mugging was not part of the mugged person’s actions at all.
Who says the state is necessarily economic efficient now? Who says that economic efficiency is a path-dependent concept?
How do you define “improve” here? Regardless, can you list some of the ways in which you think “the state can improve outcomes”?
Well StrangeLoop, it could be a giant prisoner’s dillema, but my money is on the side of the central planners not knowing what they are doing because it is just about impossible to for a select group of humans to understand every decision made by individual actors on a micro level and take it all into account. Like I said earlier, you’re expecting these central planners to be Laplace’s Demon, which they just aren’t. You’re also not even considering how it lends itself to abuse.
Eric080, I definitely am not suggesting that politicians are relying upon signals as accurate as the price mechanism, nor am I suggesting that politicians are free from the usual problems of government failure.
Once again, you can picture a better world free of such Statist costs, but that’s ignoring the real world; I can picture a world free of mosquito bites, but I also believe I–and everyone else–only minimize those costs as much as is wanted.
Doesn’t that depend on your value scale? What if I really hate missing planes and don’t mind waiting a while? I like reading and I can read at the airport as well as at home.
Yes, institutions matter. Are you honestly and seriously making the argument ‘well, England 200 years ago was way more liberal, but they were a lot poorer, so institutions don’t matter’?
Well; nobody is arguing that the institutions aren’t the ‘results of expectations and technology’. It would be weird to claim otherwise; institutions evolve out of human action, so where else would they result from? Little angles? The thing I’m wondering is why do you think that this would in any way be ‘new’ or a ‘refutation’ of anything we’re saying?
And the same might happen with the state. As an economist I would say that that’s the only way the institution government will end - when ‘costs’ outweigh the ‘benefits’ (within the institution itself) for a whole lot of people, so they have an incentive to break lose of it. As a libertarian: I’m advocating that people attach bigger (moral) costs to the institution government than they do to day. That’s the relation between normative and positive analysis.
That’s because you misunderstand the position. Nobody has ever said: ‘well, market failure doesn’t exist, because people never fail to coordinate things that in an ideal world they might coordinate too’. We’re just saying - in your language: ‘failure to coordinate’ (even in a completely free market) is ‘optimal’ for the people involved and government intervention distorts this optimality, because of the use of coercion, which necessarily involves the negation of some people demonstrated preferences as such.
So there is no inconsistency with arguing that institutional change is a public good. As I tried to explain - in a post which was completely ignored - there is a conceptual difference between the institution itself and people interacting in that institution. Within a given institution ‘coordination imperfections’ might arise, but people find that optimal, given the circumstances. (Costs to coordinate are estimated to be higher than the benefits.) This can also be true in order to change the institutions: individual costs can be higher than the benefits. Furthermore; ideology (or ‘rational irrationality’ if you prefer something with the term rational in it) can distort the estimated benefits and costs of social change. It doesn’t follow however that the institution itself is perfect; but it does follow that given the preferences at the time; changing the institution is ‘less efficient’ than keeping it. That’s why libertarians have the idea of ‘changing the mind and harts of peoples’, so people estimate costs and benefits differently and it becomes ‘efficient’ to change the institutions they live in.
So yeah: sometimes it might proof difficult to overcome coordination problems in a free market - compared to an ideal world where there are no transaction costs, no exclusion costs, etc. Just like there might be coordinating problems to change the institutions to an ideal world where there is no coercion.
Furthermore: ‘the state can improve outcomes’; why ‘the state’? Why not ‘the local maffia with guns’? Why not ‘me carrying a shot gun’? If you’re saying that some guys with guns can improve the outcome - and that’s basically what we’re saying when talking about government. And this is not to be meant normative; I’m not passing judgement here - than you have to admit that even the local maffia or someone carrying a shot gun can improve the situation, no? Or what’s the (relevant) difference? Before you ask: yes, I’m being serious here. There is really nothing in government that makes it more ‘rational’, more ‘benevolent’ or whatever than some guy with a shotgun (he could be benevolent and know more about the situation than the bureaucrats). So if it’s possible that government can improve the situation, aren’t you forced to accept that the guy with the shot gun can improve the situation too?