I apply a Public Choice methodology to model politics. Public Choice provides a positive, microeconomic model for the political process of redistribution. The essential dynamic of the model can be reduced to a government market for purchasing legal recognition as means to secure economic rents. In the literature this is referred to as “rent-seeking.” The academic literature studies the effects and consequences of “rent-seeking” on the the liberal democratic model.
It is, however, a mistake to view the Public Choice model as “libertarian.” It is a methodological approach. Typically, in the literature, it is one particularly concerned with reconciling rent seeking with the liberal rule of law. The public choice methodological route to the libertarian position is to demonstrate that the rent seeking becomes the source of the decision-making rules. By decision-making rules, we mean super-majoritarian “constitutional constraints.” This result essentially means that the rent-seeking becomes the source of the so-called “social contract.” In terms of Buchanan and Tullock, we would call this condition the union of the protective and redistributive state. Both Buchanan and Tullock, as liberals, would view this equilibrium condition as anamolous. However, the libertarian views this equilibrium condition as likely and expected.
This union of the protective and redistributive state leads us back to classical libertarian class analysis born from the more radical French liberal tradition. The primary insight from this tradition is law not as an instrument of justice, but of plunder. Bastiat clearly wrote, in such as essays as “The Law,” what we should expect in this equilibrium condition of law as plunder. We should expect a moral framework to legitimize it. We should expect that anyone who dares to doubt the morality of these institutions to be deemed a subversive or a dangerous utopian. Today, we can expect the label “racist” to defintely be thrown in. If you dare to engage in public discourse, you will find youself up against an organized machinery fully vested in the political economy of the status quo. If there exists a law which sanctions slavery or monopoly, it must not be mentioned. Still further, as Bastait wrote, morality and political economy must be taught from the point of view of such laws. Finally, a particularly tragic side effect of this plunder equilibrium condition is exaggerated importance given to political passions and conflicts, and to politics in general.
Our positive(as opposed to normative) model provides us with a critical framework to examine our modern context. “American Exceptionalism” is a moral framework for legal plunder. The exaggeration of political conflict can become no more absurd than Newt Gingrich’s recent proclamation concerning the presidential election: “this capaign will come down to american exceptionalism against saul alinsky radicalism.” The absurdity lies in the positive fact that anyone who actually challenges the moral framework of american exceptionalism is effectively disqualified from becoming a “viable candidate.” The more effective the exclusion, the more exaggerated the political dialogue becomes, with opponents casting each other as extremist threats to the “consented” moral framework. Of course, neither political candidate denies the moral framework nor is either candidate in any way a challenge to the status quo. Both are heavily financed by the same institutional sectors. Indeed, we can almost predict an inverse mathematical relationship between the policy differences of the candidates, represented by quantity Δp, and the likelihood of the political dialogue being cast in the exaggerated, doublethink vocabulary of the cultural war.
The positive model of the microeconomic foundations of politics describes a rational process. Rent-seeking is rational. The positive model for irrationality relates directly to the rationality of democratic action–for example, voting–challenging the systematic bias of an institutionalized moral framework of something like American Exceptionalism. The traditional Public Choice model of rational ignorance pits the public goods problem of an informed general voter against self-interested politicians, bureaucrats, and rent-seeking minority interests. But this traditional model is rooted in an assumption of an equilibrium condition that does not violate liberal constraints. If, however, our equilibrium condition is the “anamolous one,” that is, the union of the protective and redistributive state, then our rationality problem regarding democratic action now must contend with the problem of institutionalized systemic bias.
Rationality and Bias
The failure of rent-seeking to conform to the expectations of the rational model(Tullock) led Bryan Caplan, for example, to formulate an alternative microeconomic rent-seeking model, “rational irrationality,” that roots a systemic bias in voters. This model treats voting as a type of pyschological divergence, a a rare chance to indulge in a private cost-free fantasy game, one that is unencumbered by the usual rigors of real life that do impose costs on bad decisons. Voters, in a word, are delusional. They can afford to be delusional because they do not have to bear the full costs of bad voting decisions. Caplan’s model is a replacement for the “Rational Ignorance” voter model of Public Choice.
Caplan’s criticizes “Rational Ignorance” for confusing ignorance with bias. However, Caplan’s methodological flaw is to equate bias with irrationality. The paradoxes of rent-seeking have been a topic of concern for Public Choice theorists for some time. Gordon Tullock’s edited compilation, “Efficient Rent-Seeking: Chronicle of an Intellectual Quagmire,” formalizes the problem quite nicely. The standard to the Tullock Rent-Seeking game is one with dissipation of monopoly rents and high social costs. In others words, the redistribution transfers nothing and wastes real resources. But this solution turns out only to be a special case. In general, competition for rent where the the probability of capture/winning the rent is a function of agent/player investment exhibits no general equilibrium pattern. That is to say, the general space of equilibriums do not necessarily have solutions in the Nash Equilibrium sense, meaning that agents/players do not know the equilibrium strategies of the other players.
The paradox of rent-seeking arises in the rational model without any consideration of bias. The rational model extends to the general class of games characterized by competitive entry into a profit-making situation. The question is whether in such games we should expect rents to be under dissipated, fully dissipated, or over dissipated. I turns out the solution set for this type of game consists of all 3 equilibrium types. In this sense, the rational model has no real equilibrium. This outcome could be thought to pose a serious existential quandry for capitalism/markets since there is no real expectation of regularity under the rational model. That is to say, the rational model implies a market economy to be a potentially chaotic thing. That the Tullock paradox is not treated as an existential threat to the market economy is because empirical observation demonstrates that market economies by and large behave as expected–full dissipation of rents–when we have competitive entry and declining marginal returns on agent investments. But there is no logical reason to restrict our equilibrium to this standard solution.
One possible explanation for our empirical observation of market regularity is that humans have a bias toward standard market behavior(historically, “rationality” then became conflated with the bias). This hypothesis would obviously fundamentally undermine Caplan’s “rational irrationality” argument. Of course, observation of the behavior is not necessarily a scientific demonstration of the bias(this is the mistake Caplan makes in trying to extend observations in political rent seeking to a general principle of bias). However, given that the rational model does not actually have any logical reason why we should expect the standard solution, if we propose that humans are biased against the standard solution, then we shouldn’t expect the standard solution to appear in any context. Put differently, market regularity may not be scientific proof of human bias toward market thinking, but it’s a convincing empirical contradiction of the argument of human bias against market thinking. The observable divergences of political rent seeking from the standard solution are not proof of human bias against market thinking. If this were the case, we should also see the same bias introducing the same divergences in the generalized rent-seeking game that extends beyond politics. In short, we should never(or rarely) see full dissipation of rents in any competitive context. Markets are useful social tools not because they are rational, bur rather because they are “regular.” In logical terms, we would say rationality is a necessary but not a sufficiency condition.
Political Failure and Bias
The Public Choice Rational Ignorance voter model only holds in the special case of political competition resulting in the dissipation of monopoly rents. If we have a case of under dissipated rents or over dissipated rents, we shouldn’t expect Rational Ignorance to be explanatory. The mistake Caplan makes is to interpret this failure of Rational Ignorance to indicate irrational anti-market bias for human agents. However, we should expect this bias, if it were to be the case, to similarly influence all games that have competitive entry for profit-seekers, so that disspation of rents followed the same pattern as political competition. This assumption is reasonable because the rational model has no real equilibrium regarding rent dissipation.
The actual observed equilibrium in US political competition is one of severely under dissipated rents. The total observed rent-seeking expenditures are orders of magnitude smaller than what they should be relative to outlays. This divergence has become particularly pronounced since 9-11(the acceleration of the Security State) and the subsequent financial bailouts. The challenge the likes of Caplan would throw out is how to square my position regarding human bias with the massive under dissipated rents in political competition. Caplan would argue that the same human bias that makes markets perform more or less regularly should be able to effectively reform the divergent behavior of rent dissipation in political competition.
Caplan’s argument would have merit if not for the fact that the difficulty of reform is explained by the systemic, institutional bias that evolves around maintaining the current equilibrium. As predicted by Bastiat, this is the encompassing political economy of a moral framework that arises to legitimize plunder. The need for a political economy of moral legitimization is actually particularly telling about the nature of human bias. It arises to thwart reform.
Caplan’s probable appeal to an absence of reform in the light of massive under dissipated rents is not an argument for his version of bias. On the contrary, our current political context demonstrates how foolish the idea of reform through political channels is. Everyone knows that we have a corrupt political economy, and there are plenty of competing theories/ideas floating around on how to reform it. But the political actors are so tied into the political economy of moral legitimization that today our most trusted domestic news source is the comedy channel and Jon Stewart.
Paleo-Libertarianism: The God that Failed
Hans-Herman Hoppe defines praxeology as an “a priori science of human action” akin to a branch of applied logic. Praxeology rejects the methodology of the modern scientific method applied to economics. This doesn’t mean adherents of the praxeological method reject the natural sciences. It simply means they reject the methods of natural science applied to economics, and/or that the methods associated with natural sciences have any relevance to economic theory.
Praxeology derives its modern roots from the original socialist calculation debate wherein both Mises and Hayek, representing the 2nd generation Austrian school, concluded that the argument against the social rational agency implications of Neoclassical static welfare equilibrium required a heterodoxical methodology. Mises went the praxeological route and Hayek the evolutionary/biological route. Today, the evolutionary/biological methodology is in quite in vogue while the praxeological route is disparagingly associated with Ayn Rand(erroneously, however). Of course, the original heterodoxical complaint against neoclassical welfare equilibrium, that it in no way represented a dynamical theory, turned out to be quite correct. Any dynamics of Macroeconomic equilibrium, void of microeconomic foundations, are generally not taken too seriously any more(sans the partisan political realm). And no one credibly would suggest these days that microeconomics follow a methodology of Hamiltonian mechanics. However, it is erroneous to think that elements of natural science do not have any relevance to economic theory. In particular, complexity theory, that includes such concepts as network effects, lock-in and path dependency, have a great deal of relevance to economics. Indeed, it is the concept of path dependency that pans the validity of praxeology.
A demonstration of this is to consider Hoppe’s thesis from “Democracy: the God that Failed.” Hoppe’s political theory argues that liberalism itself was a mistake. In a sense, Hoppe echoes Hobbes’ original argument made in Leviathan. However, Hoppe employs an “Austrian methodology,” one that relies heavily on “Time Preference” to propose a modern argument for the preference of monarchy over democracy. The argument here is that monarchy would be governed by a more future-oriented, low-time discounting whereas democracy is driven more by present-oriented discounting. This creates a major difference in the incentive structure of the governing systems, particularly with respect to the rate of “plunder.” Since hereditary monarchy would have a vested interest in the long-term preservation of rule(future-oriented outlook), there would be more constraints on bad policies compared to liberal democracy’s present-oriented discounting incentive, which offers little or no constraints.
Hoppe’s argument is in the form of an ex-ante efficieny claim regarding the “path” of Monarchy. In the literature, this type of path dependency is referred to as a second-degree type. This simply means that subsequent events have revealed an earlier action to be inferior to a given alternative. This is the result of imperfect information: i.e., no one knew (or it was a disputed point) at the time that monarchy, in this case, was the superior path over democracy. However, I would suggest that ex-ante efficieny claim is based an unjustified extrapolation over the current path. Namely, Hoppe is implictly making a ceteris paribus assumption regarding the recognition of the legitimacy of hereditary rule. If this legitimacy, in the age of enlightenment, is challenged or questioned, then even our future-oriented, benevolent monarch has to waste considerable resources to enforce/maintain recognition of legitimacy. Eventually, the organs of the monarchy would have to extend into every sphere of civil society, particularly in education, to maintain recognition. This enforcement of the moral framework is what leads to a political economy of plunder, by which we really mean a “security state.” And the monarch eventually becomes a figure-head to the real power, which would be the organs of this security state. Thus, the “private property of the realm” eventually becomes collective property. Observers at the end of that timeline then argue that Hobbes’ Leviathan was the “God that failed.” And there is great regret that liberal democracy wasn’t the path taken.
Path dependency often make moral arguments irrelevant. An excellent example germane to our current context is IP/Copyright enforcement. The moral arguments pro or con are irrelevant. The simple fact is that enforcement of the traditional regime of IP/Copyright in the digital world will result in a dystopian police state. Our digital world provides an efficient communication transmission model for low-entropy human language. A market process applied to this digitial world creates a “public goods” condition of sorts for human ideas in the sense that every thought and idea of humans that has been digitized–converted to a digital object– can be stored and transmitted at a cost that approaches a practical zero. Things like “disk storage” or “bandwidth” themselves are not “post-scarce goods,” but the digitial goods they store and transmit essentially approach non-excludability and non-rivalry. Any moral claim that you and I must suffer a police state to enforce another’s property rights is simply a violation of the libertarian principle(lockean proviso).
Of course, the internet, which is very much a product of path dependence, is not a moral argument or proof against ideas cast in terms of property rights. If these ideas can be enforced as property rights without making anyone worse off relative to no regime, then there is no libertarian argument against them. But the efficiency of the internet makes this prospect a dubious one in most instances. But we should keep in mind the evolutionary history of the internet. It is often claimed that the government “invented the internet.” This is a half-truth, but it is undeniable that the the US Military’s adoption of the tcp/ip protocol in the 1980s essentially enforced/solved a coordination problem that drove out competing protocols. In a global free market, where competing players are roughly equal, would a universal standard emerge? Perhaps, but it probably wouldn’t have emerged so soon or at least certainly wouldn’t have emerged without resolving a number of problems that remain unresolved today. The efficiency of a universal standard resulting from a resolution of a coordination problem often is given as evidence of the need of government collective action. Perhaps, but it is still too soon to make an ex-ante efficiency claim. This is because there is a plausible devil’s advocate argument that the internet is particularly suited for a political economy of total surveillance. In any event, any claim that the solutions to these types of problems can be deduced from “a priori science of human action” is not plausible.
We should in mind the gem of Misean praxeology, namely the marginal treatment of money, relies on a path dependency argument at its core. This is because while an “a priori” treatment of money can work out a theory of money as a commodity(subject to the ordinary rules of marginal utility and subjectivism), it can’t actually inform us what this commodity actually should be. For this, an appeal to path dependency is made regarding “gold.” The Misean Regression Theorem is a path dependency claim regarding gold. Interestingly, many Miseans treat this path as an eternal one(thus turning it into a normative claim), which, of course, is absurd.
Path dependency also wreaks havoc on Hoppe’s social theory. Hoppe extends his “Time Preference” principle to model class conflict and civil society itself. A “natural aristocracy” arises out of time preference differentials between the elite/intelligent and poor/stupid. Present-oriented discounting is at the foundation of “decivilization” of civil society. Hoppe, who sees future-oriented time preference as a necessary condition for a libertarian order, argues the need for social conservatism and religion as the foundation for civil society. In particular Hoppe asserts the need for a traditional Christian family-based communitarian order. Only from this can the “natural libertarian order” emerge.
However, historian Thaddeus Russell’s “A Renegade History of the United States” indirectly demolishes Hoppe. Russell’s revisionist historical research demonstrates that it is often the “present-oriented” “cultural dregs” who are responsible for “freedoms and liberties” we take for granted today. In one sense, this shouldn’t be a surprise. After all, the libertarian motto is Carpe Libertatem. Seize liberty is not an expression about future-oriented discounting. It is an expression regarding the here and now. We can formalize these ideas by noting that future-oriented discounting can also represent a type of social “lock-in” that is neither particularly desirable nor efficient. To overcome this type of lock-in often may require a population of present-oriented discounters. What we end up with then is a social theory of culture that is rich and thick as opposed to one that is uniform and thin. Of course, the latter is not really a theory of culture. Instead, is an expression of moral preferences originating from one person’s mind.
The Rationality of Political Recognition
The South Carolina fundamentalist Christian debate audience booing Ron Paul’s suggestion of American Foreign policy following the Christian Golden Rule was instructive of the rationality argument vis a vis the support of Ron Paul. The argument for me boiled down the problem of GOP agency. This reduces ultimately to the worth of seeking libertarian recognition from fundamentalist Christianity. The boos from the Christian audience crystallized the worthlessness of this objective. They were either booing their own moral foundation or booing the suggestion that the State’s actions should not be exempt from the moral constraint. Of course, in most other contexts, any perceived failure to enforce the Christian moral foundation is viewed as a “War on Christianity.” This is classic Doublethink. Not only is there is no value in seeking recognition from Doublethink, any such recognition that is forthcoming is not only a hindrance but injurious to the cause.
Does this mean that Paul’s participation in the debates is worthless? Nope, not at all. Indeed, there is potentially great value that can be derived from his participation, particularly with respect to his critique of the unitary executive. However, the political ends of recognition–it appears the Paul campaign is now openly advocating for Rand Paul to be a vice-presidential candidate on the GOP ticket while it also works behind the scenes to secure prime time GOP convention recognition–hold no value. Recognition may be the sine qua non of communitarian political theory, and recognition may be an important element of human social theory, but in liberal political theory, recognition without justice has serious shortcomings. Indeed it is exactly these shortcomings that inform us exactly why the State is not the community.
One particular motivation for this essay was to outline a liberal political model that can rationally explain the vastly different actions taken by, say, a liberal state like Iceland in response to the International Banking Bailouts versus those of other liberal states, i.e., the United States. In Iceland, you had the rapid adoption of the world’s most liberal transparency laws and an embrace of document-sourced journalism such as Wikileaks. In the United States, we have seen the opposite reaction. Document-sourced journalism is treated by the State almost as a form of terrorism. Accused sources for leaks, in some instances, are tortured.
Often, states like Iceland(and Sweden, Switzerland, etc) are presented as counterfactual to a radical libertarian class analysis. Indeed, I can cite the case of Iceland as a counter-factual to Caplan’s case that apparent lack of corrective political reform with regards to monopoly rents implies the need for an alternative microeconomic model.
Yet this “paradox” is not a paradox if we note that the rational model of economic rent seeking has no real equilibrium regarding dissipation of such rents under competitive entry. Divergences from the standard solution of full dissipation of rents is an indication of bias but not necessarily of irrationality. Of course, convergence to the standard solution is just as much likely an indication of bias as well and not necessarily of rationality. Once we hypothesize that an equilibrium explanation most likely is a function of a “bias model,” we can arrive at an explanatory model relatively void of paradoxes.
For example, “Rational Ignorance” holds in the case of competitive dissipation of rents. In such a case, it is rational not to vote or even to waste any resources/time to become familar with the issues. The only case for “political awareness” is in the instance of a given rent-seeking threatening the boundary constraints of the decision-making rules of the liberal State. So it is rational not to vote or engage with political parties, but it may perhaps be rational to contribute to non-partisan watchdog intermediary groups, such as the ACLU or EFF. In the case of egregious violations, you then have a “reform corrective action.” Of course, the corrective action itself represents a bias for enforcing an equilibrium of rent dissipation.
However, in the context of under dissipated rents, the “Rational Ignorance” voter model certainly would not hold. There could be a case for concerted political action as means to correct this outcome but this corrective political action effort runs smack up against a systemic bias of a political economy(legitimized by a moral framework) that thwarts any such reform action. In this context, is irrational to rely on any standard organs of political action. The only effective means are “Direct Action.”
So, to unite the classical libertarian class analysis with the modern public choice model, we formalize a bias model with respect to the emergence of moral frameworks of political economy and incorporate this into the Tullock Rent-seeking game. This is a far superior microeconomic model to “explain” the Tullock paradox than, say, Caplan’s alternative. Caplan’s model can’t explain dissipation of rents in any context, including the empirical observation of the (non-political) rent dissipation in terms of regularity, the ability of corrective reform in some political contexts(e.g., Iceland) and the ubiquitous emergence of black markets in the case of under dissipated rents. Caplan’s model really reduces to a Econ professor’s need to grade on curve for Econ 101 as an explanation for political economy.
A second motivation was to reinforce that the “radicals” who attach great importance to recognition of Ron Paul in terms of the cause of liberty are hardly being rational. Recognition of libertarianism within the GOP is largely a dead-end. Recognition can hardly overcome the problem of the “Bastiat Bias Model.” Indeed, Christian conservatism, which is ultimately what we are talking about in terms of GOP recognition, is at the heart of the legitimizing moral framework of American Exceptionalism. Ron Paul doesn’t demonstrate the solution; he demonstrates the problem…