we know of the laffer curve and the calculation problem but in light of these two things how can we say that the state is affected by the market -aren’t they two totally different things in two totally different genera?
I don’t understand.
If two things (like state and market) are so utterly different (basically opposites) in what way common to both their natures can they affect each other?
Or basically: How does the state affect the market and vice versa?
In the short term, the state will hamper the operation of the market. In the long term, the market will eliminate the state.
Ah but does the state face incentives? I’m guessing it does but are they monetary? Do they come from votes, or the esteem of courtiers etc.?
Or do they face incentives from public land, rent seekers, etc.?
Indeed, does a socialist country face incentives from the industries under its control?
yes, human beings that are part of the state are human beings and do of course face incentives.
So kings faced incentives from their lands, and democracies face incentives from their public lands? Or do the latter face incentives through votes or special interest groups, etc.? From where do these incentives originate?
These are very broad questions. Perhaps i’ll join in again later down the line [:)]
Don’t worry I think I got it figured out -for now.
The public lands under democracies are purchased by special interests. So through that market signal states face sort-of market incentives. But without anything to sell, would states face incentives still? Probably from laffer curve effects?
Judging by your questions, I think you would really enjoy reading Hoppe’s Democracy: The God That Failed.
The State’s primary aim and purpose is war. If we think of the State as a corporation that produces something, the product it produces is war. It produces war because wars redraw property lines (transfer property to the warrior class). States are comprised of exactly those individuals and/or power groups who have been most successful at redrawing property lines in their own favor. Since the market relies on well-defined property lines to signal what belongs to whom, the State and market are essentially antithetical. The more State there is, the less market there is and vice-versa. Because the State is antithetical to the market, it is unable to benefit from the discipline of calculation as regards profit and loss. This should be obvious just from looking at the tax system… if the State spends too much, oops, no big deal, just raise taxes.
You are suggesting that perhaps the Laffer curve acts as a kind of market discipline upon the State, forcing it to conserve its impulse to tax without limit. However, I think you are looking in the wrong direction, namely, you are considering domestic production as a goal which the State shares. The State couldn’t give a hoot about absolute levels of domestic production. If you need empirical evidence, just look at your average nation around the world. Absolute levels of production in the average nation are abysmal compared to what they could be in the absence of the State’s rampant vampirism. Most nations production sits well below their Production Possibility Frontier (PPF). If the State really had an incentive to maximize the productivity of its citizenry, then we would expect average nations to achieve a significant proportion of their PPF. Some nations would virtually achieve their PPF and a few outliers might sit significantly below their PPF (e.g. North Korea). Why is it this way?
The State does not care about absolute wealth. “Relative wealth”, to borrow a weasel word from the sociology community, is the State’s foremost concern. The State is all about remaining King of the Hill. The State is the accretion of past capital successes, whether by success in the marketplace or through war and plunder. If you found the next Google, for example, and launch into the stratosphere of wealth and power, you’ll never outdo yourself. It will be someone other than you who founds the next Google after you. So, your primary concern after achieving spectacular market success is not with building more capital by taking even more risks in the marketplace. Rather, your primary concern is preserving the successes you’ve already achieved. The best way to do this is to influence the State to create rules which hamper or even prohibit entry into the market you originally dominated through honest competition. Best of all, in a democracy, you don’t even have to pay for this service, it comes free of charge at taxpayer expense. All you need is an initial seed money investment in lobbying for the rule changes you want. Once the rules are in place, the State takes on the burden of seizing the money (taxes) to pay for the enforcement of the rules you lobbied for.
It doesn’t matter to Joe Executive whether his pet regulations which protect the market dominance of the corporation he heads strangle the economy or even his market, so long as they strangle his competitors or potential competitors more than they strangle him. Emissions controls are a great example of this dynamic in action. It costs a great deal more for a startup car company to design a vehicle from the ground up in compliance with all applicable environmental regulations than it costs an established car company to incrementally alter its existing designs (which were in compliance with all laws and regulations up to the point of the latest change) to accommodate the new environmental regulations. This makes it more costly for startups to enter the car manufacturing market (a market which is already formidably capital intensive), reducing competition and increasing prices and profits. As you can see, the accumulation of these fascist regulations are, indeed, strangling the US economy. But that is no matter to the heads of major corporations… their worst fate is to be nationalized or taken over by an even larger corporation. The CEOs take their golden parachutes and the board members get hired on at other corporate boards. The stockholders are given a little hush money or issued new shares and the economy is imperiled while unemployment and crime soar. Who cares? Joe Executive is still Top Dog… he was my Dad’s boss and his children will be my boss. That’s all that really matters.
The only market to which the State is actually subject is the market for sovereign territory since territory is finite and it is how States are delimited. Even “human capital” is not so much of a problem since the State impedes exodus and the costs of changing States are prohibitively expensive for the vast majority of people. Since incrementally moving territorial boundaries is problematic for technical reasons (David Friedman explains why in an awesome online article entitled, “A Positive Account of Property Rights”), sovereign territories tend to be held all-or-nothing. Hence, modern States are more interested in projecting power onto each other than onto each other’s borders. National governments of the major world powers spend hundreds or thousands of times as much money on intelligence and spook work than they do on securing their borders. Bringing a foreign government under the sway of your own government is much better than fighting that government for its territory. If you’re the US, it’s much preferable to influence the top Mexican government officials to adopt policies favorable to the interests of the US government than it is to try to fight a war over the border.
To summarize, I think that the forces of the world are still towards the formation of larger conglomerates. We may be at or near an inflection point, however. At some point, the world’s power centers will become sufficiently few in number than no further meaningful conglomerations can occur. At this point, it is hard to say what will happen. What will not happen, IMO, is the formulation of a true global government (global monopoly on law and security with taxation powers). There are just too many people at the highest positions in the world’s power centers that aren’t stupid enough to give up their license to act with impunity (national sovereignty).
Clayton -
I think you’re right, and maybe I should look up more Hoppe. In any case I would conclude from the above that the state does face incentives (even marketish ones) from the people that control it. For instance, feudal lords had a real interest in increasing rent which is why they wanted to conquer other lands -in order to gain the serfs and revenues which those other lands held.
But in today’s world, territory is less indexed to immediate wealth. What matters is finances and commerce. So the state (which through the numerous gov. agencies, appoints businessmen to high offices) now is more interested in taking control of financial and trade concerns. The two parties of the state are more or less, giant lobbies for two competing rent seekers? And this never bother’s state officials since they think they’re serving to reform things even though, the special interests are the only ones being served? But what’s up with votes? Obviously they are ineffective as incentives but shouldn’t they have even a slight effect on a politician’s decisions?
Under communism, is the state is it’s own special interest? What incentive could a communist state have?
Gotta tackle hoppe.
It’s kind of interesting that if heads of government knew Austrian Economics and they also had low time preference (longer terms of office), they may well eliminate much of the regulation and taxation as an investment in their own future income from taxes and bribes. By letting the economy grow rapidly for a few years or decades, it seems they could reap tremendous benefits down the line, even with relatively low tax rates, just because of all the money flying around. (Perhaps this is Hoppe’s point - longer term limits would move the government system away from democracy and toward monarchy or aristocracy.)