Maybe it’s already been given, but can you give me a definition why an ‘institution’ is efficient?
Bare in mind that we shouldn’t compare ‘tariffs’ to ‘non-tariffs’ but ‘government’ to ‘the market’, for the obvious reason that that’s the level of institution we’re talking about. If a certain institution creates (systematically) inefficient policies (like tariffs) and that we see a causal link between these effects and that the institution promotes ignorance and irrationality in decision making… Than I would say that this is an inefficient institution.
I think this is my final answer, after given it some thought.
Suppose a man spots a weed in his backyard. He tells his wife, “I wish that weed wasn’t there! How irritating!” He then proceeds to sit on his sofa and watch TV. The next day, he spots the weed again, “Damn that weed!” he exclaims to his wife. Afterward, he orders pizza and sits back down on his sofa. Weeks pass, and the weed is never pulled.
Based upon the previous scenario, here are my questions:
Would pulling the weed have been “efficient” or “inefficient” for the man?
Alternatively (and I think this makes a difference), was not pulling the weed “efficient” or “inefficient”?
You do realize that this is completely irrelevant for the purpose of analyzing government versus the market process, right?
The right question is: which of the 2 processes will insure that the person makes the ‘efficient’ decision based on the costs and benefits that will happen in the world, i.e. not to externalize to many costs and so on and so forth.
That’s the question to ask when saying that an institution is efficient or not.
If you want to more ‘scientific’ answer: the action chosen demonstrates the demonstrated preference the person has. You can have demonstrated preferences in every kind of social organization, so this can’t be a way of measuring the efficiency of institutions. We need something else; something that is different in different kinds of social organization. I’m using the one I described above. Others are possible too. But just saying: ‘well, we have demonstrated preferences, so efficient institution!’ doesn’t make any sense. It’s just a tautology that doesn’t give us anything new or relevant information.
Many bookstores have entire shelves dedicated to the practice of witchcraft; I could claim that such promotion of irrationality is “inefficient,” but all I’m actually doing is cloaking my normative judgment. If those persons are not facing costs for those beliefs, then there are two consequences: (1) I see no ethical compulsion for me to intrude and introduce more scientific thinking (2) since the patron is purchasing books on witchcraft, then that person is facing incentives wherein additional information (e.g., scientific philosophy) is unnecessary and even inefficient.
Likewise, I consider most cable newschannels to simply provide entertainment: lightweight information that sates consumer preferences, not information that conforms to philosophico-normative conceptions of knowledge. I would not intervene in that process; if I believe the audiences should have “more information,” then I might very well be throwing an inefficient kink into the process, diverting resources away from other ends.
If you believe voters are ill-informed because the democratic process has insufficient incentives for information, and you have a problem with that, then that’s a normative judgment; nothing more. You’re simply stating that democracy doesn’t actually work according to the ideal that is usually proposed: a deliberative community of intelligent voters.
It is clear to me at this point that StrangeLoop either lacks the ability or the intention. But, I’ll tell you why. StrangeLoop has a Hobbesian/anthropomorphic conception of government. That is, efficiency is determined by the expressed political will of the majority. Whatever the majority wills—as manifested in public policy (indeed, in the very existence of government itself)—is what is deemed efficient.
All other social institutions are merely repetitions of this basic conception: What is, is “efficient” (read: good/healthy/desirable).
In all of this, of course, the individual takes a back seat.
StrangeLoop tried at first to incorporate individual will into his analysis by repeatedly referring to “spontaneous order”, but has since dropped the use of this phraseology, because he could never get it to fit.
Clearly, despite his previous protestations to the contrary—that is, protestations announcing the normative neutrality of his “analysis”—this whole construct is heavily laden with normative implications.
Why is saying ‘your mechanism to make decisions promotes ignorance and irrationality compared to an alternative institution’ ‘normative’? I’m not saying ‘we should’ or 'we shouldn’t. I’m just stating the facts. Just as socialism can’t calculate; so democracy promotes ignorance and irrationality. Why is this ‘normative’?
If you are arguing ‘the efficient outcome within democracy is with tariffs and so on and so forth’, than I would agree. But that doesn’t mean the mechanism is efficient. It doesn’t mean ‘the state is efficient’. It just means: ‘within a certain institution, this is what happens’. The fact that it fosters institutions that are inefficient from a micro perspective, means that the institution is bad on a macro perspective.
That is exactly wrong. To quote Jon Elster, “The elementary unit of social life is the individual human action. To explain social institutions and social change is to show how they arise as the result of the action and interaction of individuals.”
How so? I’m even incorporating the libertarian idea of “aggression” as a natural resource like any other–allocated according to individual actions (e.g., if individuals were sick of protectionist legislation, it’d be gone).
I’m even incorporating the libertarian idea of “aggression” as a natural resource like any other–allocated according to individual actions (e.g., if individuals were sick of protectionist legislation, it’d be gone).
And i suppose that Africans sold into slavery just didn’t want to be free enough, and Jews in concentration camps didnt want to be alive enough.
or maybe you should realise that the spontaneous coordination of the individuals under a regime of private property rights/economics is the very antithesis of political/hegemonic action, even as they are both human action.
The best way (imo) to this concept is like this: there is an unwarranted analogy being used from the concept of the individual to the concept of the macro level as a whole.
On the individual level, it is clear that any kind of social order will have demonstrated preferences. We can substitute this by the concept by loop called ‘efficiency’. When I don’t protect myself beyond a certain point, I make estimates. Ex post: this could be mistaken. I think strangeloop takes the bounded rationality assumption: we assume that people can assess risks and act based on it. Even if they get mugged; this was ‘efficient’.
I’ll even concede this point, because I don’t think it’s that relevant for the issue as a whole.
On the other hand, however, we have the institutional level. What strangeloop is doing is making an unwarranted jump from the micro to the macro level. While it is true that within a state/democracy we can have bounded rationality, i.e. people assessing risks, enduring costs, trying to achieve benefits, etc. it doesn’t follow that the institution as a whole can be called ‘efficient’. Obviously; we need 2 different concepts of ‘efficient’, because on the micro level ‘efficiency’ is in terms of a telos, a goal. People make estimates for a certain goal and it’s ‘efficient’ because they have acted upon ‘rational knowledge/estimates/etc.’ But at the level of an institution, there is no such thing. Institutions are there to facilitate cooperative behavior (or something like that); not to have a specific end, a specific decision. Like David Schmitdz says ‘the purpose of society is to be good place to live’. I don’t think this is a normative issue; it’s clear that the goals of mechanisms/institutions isn’t the same as the ‘goal’ of people acting within them.
We can identify ‘good’ (or ‘efficient’) mechanisms as mechanisms that promote micro level efficiency. A mechanism that promotes ignorance and irrationality can’t be called efficient in any sense.
This also proves that the terminology of ‘efficiency’ is misleading.
It’s crucial, in my opinion. If you believe there is an efficient level of crime, for instance, then why would the alleged “crimes” of the government not be included in that analysis? You could claim you are getting “mugged” by protectionism, for instance.
So basically, everything that exists is efficient, and every social institution that existed was efficient. So slavery was efficient, communism in Russia was efficient, and democracy in the U.S. is efficient. Basically, you are ignoring the commonly understood definition of the term “efficient.”
You can pay lip service to the primacy of the individual all you wish. However, your conception of “efficient” public policy is merely that a policy must withstand the test of time.
So, how is this efficient, exactly? Well, it’s efficienct from society’s perspective. Society has expressed its will, through the political mechanism. Can you not see what is going on here? Society becomes supreme. It doesn’t matter whether a specific policy is supported by 99.999% of the population, or only 51.0% of the population—both, in your conception—are “efficient”. The individual is stirred into the soup. And the person dining? It’s society. And Hobbes is in the kitchen making dessert.
In what sense am I violating the term “efficient”?
As George Stigler said, “Tested institutions and practices found wanting will not survive in a world of rational people. To believe the opposite is to assume that the goals are not desirable: who would defend a costly practice that produces nothing?”
We both agree we should be conforming to methodological individualism; repeatedly, I have stated that social institutions and decisions thereof can only be the result of individual choice. In no way did I say or imply that “society has expressed its will, through the political mechanism.” Only individuals are actors; I cannot make sense of “society” willing.
Furthermore, your “majoritarian” conception of how resources are allocated applies to markets: what “society” wants is what lines the shelves of your grocery store (there is differentiation, of course, but the same applies to public policy).
It’s as useful as libertarians claiming that individuals acting in the marketplace produce efficient outcomes. That relies upon a commitment to individuals acting rationally: seeking higher-valued ends and avoiding costs. The same commitment can be applied more globally, encompassing the entire social sphere.
More important, it’s as useful as Hayek’s criticism of central planners: don’t believe you can redesign society in a "better’ fashion than what has been produced by individuals pursuing their own interests.