The Folly of Seeking Governmental Solutions for Failures of Government

It would seem that the premise that holds government as a “good” is firmly lodged in the consensual mind. So much so, that when reading news sites, blogs, magazines and newspapers, one cannot escape a rather absurd prejudice: that government should solve the very problems that it created. Personally, I put this proposition at par with the notion that flame throwers should be used to put out fires.

 

Here, I consider the validity of the premise that says; ‘government is good’. In particular, I express my misgivings with the notion that government intervention can solve governmental failures. Finally, I explore the tendencies for a growing government and the implications for the contrarian investor.

 

Seeking Governmental Solutions for Government Failures: Some Examples

 

In this weekend’s Financial Times, a few examples of this type of thinking are evident.

 

George Osborne is to welcome controversial proposals to make Britain’s biggest banks safer, including the idea of ring-fencing “essential” banking services…

 

The underlying premise involved is that Britain’s banks are – in some sense –  not ‘safe’ enough. This premise may be true, and I have no bone to pick with it here. However, apparently, George Osborne’s proposed solution involves using very institution that made Britain’s banks not ‘safe enough’. As one of the most regulated sectors in the economy, it should be clear that the profit and loss mechanism has been perverted – the means of testing for the “good” and “bad” has been most definitely warped beyond comprehension. The folly of this statement lies in the fact that governmental solutions are deemed to be suitable for solving government failures.

 

A powerful central body should take over management of school building and refurbishment to salvage a system “not fit for purpose”, a government-commissioned review has found… The report delivers a scathing assessment of Labour’s £55bn Building Schools for the Future programme. It finds it wasteful, bureaucratic and misdirected … However, his conclusion is that the Partnership for Schools agency managing the programme failed partly because it lacked power…

 

The preposterous nature of above should be obvious. The government review rightly says that the previous government programme was “wasteful, bureaucratic and misdirected”, but absurdly concludes that this was due to its lack of [governmental] power!

 

This week’s speech by Nick Clegg, Britain’s deputy prime minister, setting out the government’s agenda to improve social mobility, …

 

A free and anarchic society would be entirely socially mobile. That is, if people were free to own themselves and their property, they would be entirely free to achieve whatever they would be capable of achieving. This is the beauty of the so-called ‘American Dream’. Only when private property rights are violated can ‘social mobility’ decrease. The absurd nature of Nick Clegg’s agenda should therefore be clear.

 

The Problem of Social Order:

 

Government is often considered to be either a “good” or “least bad” solution to the problem of social order. A frequently uttered qualifier for the institution of government is that “else things would descend into anarchy”. The work of Murray N Rothbard and Hans Hermann Hoppe flatly rejects this. They elucidate the intuition that we all knew all along; that each man owns himself and his private property. In his truly enlightening book, The Economics and Ethics of Private Property, 2nd Edition, Hans Hermann Hoppe presents the proof of this rudimentary truth:

 

The proof can be provided in a twofold manner. On the one hand, such proof can be provided by spelling out the consequences that follow if one were to deny the validity of the institution of original appropriation and private property: If a person A were not the owner of his own body and the places and goods originally appropriated and/or produced with this body as well as of the goods voluntarily (contractually) acquired from another previous owner, then only two alternatives exist. Either another person B must be recognized as the owner of A’s body as well as the places and goods appropriated, produced or acquired by A, or else all persons, A and B, must be considered equal co-owners of all bodies, places and goods.

 

In the first case, A would be reduced to the rank of B’s slave and object of exploitation. B is the owner of A’s body and all places and goods appropriated, produced and acquired by A, but A in turn is not the owner of B’s body and the places and goods appropriated, produced and acquired by B. Hence, under this ruling two categorically distinct classes of persons are created – Untermenschen such as A and Ubermenschen such as B – to whom different “laws” apply. Accordingly, such a ruling must be discarded as a human ethic equally applicable to everyone qua human being (rational animal). From the very outset, any such ruling can be recognized as not universally acceptable and thus cannot claim to represent law. For a rule to aspire to the rank of a law – a just rule – it is necessary that such a rule apply equally and universally to everyone.

 

Alternatively, in the second case of unversal and equal co-ownership, the requirement of equal law for everyone is fulfilled. However, this alternative suffers from another even more severe deficiency, for if it were applied, all of mankind would instantly perish. (And since every human ethic must permit the survival of mankind, this alternative must be rejected.) Every action of a person requires the use of some scarce means (at least the person’s body and its standing room), but if all goods were co-owned by everyone, then no one, at no time and no place, would be allowed to do anything unless he had previously secured every other co-owner’s consent to do so. However, how could anyone grant such consent if he were not the exclusive owner of his own body (including his vocal cords) by means of which his consent must be expressed? Indeed, he would first need others’ consent in order to be allowed to express his own, but these others cannot give their consent without having first his, etc.

 

Why Government is a “bad”:

 

So, if the above is clear, then any person or institution that violates the rights of men should be regarded as a “bad”. Indeed, governments are definitionally in the business of violating those rights of man. As Hans Hermann Hoppe describes in the epic; Democracy: The God that Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order:

 

A government is a territorial monopolist of compulsion – an agency which may engage in continual, institutionalized property rights violations and the exploitation – in the form of expropriation, taxation and regulation – of private property owners.

 

That is, governments are inherently engaged in violating the ‘just rule‘ that each man owns himself and his property.

 

Economically Speaking, why government is a “bad”:

 

What has been said above is sufficient to figure out if government is a “good” or a “bad”. But nevertheless, for all those people that justify governments based on economic judgements, allow me to continue. That is, let me attack statements of the form; ‘we wouldn’t have such and such without government’. Again, I cannot help but quote Hoppe (in Democracy: The God that Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order):

 

No one buys government “goods” or “services”. They are produced, and costs are incurred to produce them, but they are not sold and bought. On the one hand, this implies that it is impossible to determine their value and find out whether or not this value justifies their costs. Because no one buys them, no one actually demonstrates that he considers government goods and services worth their costs, and indeed, whether or not anyone attaches any value to them at all. From the viewpoint of economic theory, it is thus entirely illegitimate to assume, goods and services are worth what it costs to produce them, and then to simply add this value to that of the “normal,” privately produced (bought and sold) goods and services to arrive at gross domestic (or national) product, for instance.

 

In other words, for anyone claiming anything about the merit of government-produced things, it should be noted that – from an economic point of view – something ‘even better‘ would have been produced without government. Thus, even economically speaking, advocates of government have no intellectual ground to stand on.

 

If Governments are bad, then why do people embrace them as a “good”?

 

First, I should mention that this is speculation – each man’s mind is an island, thought as such is not accessible externally from the thinking being. However, man – it would seem – is a creature of habit. Put in the context of a state-ruled society, he tends to ‘fit in’ as if it was always like this or as if this is the best of all worlds.

 

In his beautiful little pamphlet called The Politics Of Obedience The Discourse Of Voluntary Servitude , Etienne de la Boetie lucidly described this tendency in man:

 

It is true that in the beginning men submit under constraint and by force; but those who come after them obey without regret and perform willingly what their predecessors had done because they had to. This is why men born under the yoke and then nourished and reared in slavery are content, without further effort, to live in their native circumstance, unaware of any other state or right, and considering as quite natural the condition into which they are born . . . the powerful influence of custom is in no respect more compelling than in this, namely, habituation to subjection

 

Applying this to today: One grows up in (mostly) state schools reading (almost exclusively) state literature with guidance from (essentially) state-employees. After which, one will probably go to a state-backed university to read state-focussed social theories and – again – do so under the guidance of (essentially) state-employees. Even education aside; daily life inevitably involves the state. For example, consider the momentous fact that virtually all private property is encirculated by state roads!

 

Moreover, consider the thought processes of typical ‘enablers’ of policy – that is, of typical voters. The most obvious and typical form of rationalizing government intervention goes along the lines of ‘if we don’t do such and such, then such and such will happen’. The thing that is amiss, is that the latter ‘such and such’ must be rationally and logically qualified to be valid. If ‘such and such’ is to be a legitimate goal, it must be deductively universally valid. Again, quoting Hoppe (in The Economics and Ethics of Private Property, 2nd Edition):

 

Rather, what makes them self-evident material axioms is the fact that no one can deny their validity without self-contradiction, for in attempting to deny them one already presupposes their validity

 

Arbitrary economic judgements (e.g. about GDP growth) and social judgements (e.g. about preferred male/female ratios in a profession) do not cut it. And yet, a la democracy, these kinds of erroneous propositions have sway – indeed, significant sway.

 

Tendencies toward an Augmenting Government:

 

If the government is seen as a “good” and is deemed capable of solving the implications of its illegitimacy, then there emerges a rising trend in the size and scope of government. As it is antagonistic to life and prosperity and not a wealth producer, unfavourable consequences inevitably arise. Such undesirable consequences have the tendency to increase rather than decrease the size of government, so a cascading upward spiral remains in force.

 

However, such an upward spiral in the size of government lacks the dynamism of the spiral during – say – the Weimar hyperinflation. We have a private sector that does great things on the other side of the equation – and so capital can still be accumulated. Pater Tenebrarum at the excellent acting-man.com has recently paraphrased a relevant comment by Hans Hermann Hoppe (at a recent conference):

 

It is a testament to the power of the free market that in our modern day welfare state societies, a tiny minority of people is creating enough wealth to enable the financing of the entire system and still accumulated additional wealth.

 

Implications for the Contrarian Investor:

 

If government intervention continues to create warped markets and unintended consequences, and nevertheless people keep the premise that ‘government is good’, then there are some notable implications for the contrarian investor. Most notably, that there exists potential for speculation in flatly addressing unpalatable issues (that consider the government’s lack of omnipotence). For example, betting on the notion that central planning may fail may be – at times – contentious yet favorable (risk-wise). In short, there may be opportunities to take positions against people who refuse to address these issues properly.

 

Secondly, and perhaps most importantly, we should note that – due to the unwillingness to place blame where it lies (on ourselves for supporting the institution of government) – there will likely be a great deal of searching for scapegoats. The contrarian investor should be careful not to be that scapegoat! Jim Rogers’ repeated statement about water is entirely relevant here:

 

I would not suggest you own water, because if you own water, when things get really bad, the politicians will sneer and say, “You filthy horrible capitalist, you are making money off people’s God given right to water.” And if you are lucky, they will hang you in the city square. But if you can solve the water problems, they will build a monument to you in the city square and you will be extremely rich.

 

See here for our collection of rare historical economic data.

Posted Apr 10, 2011
by | Categories: Other
  • http://aalborg.academia.edu/DougWilson Doug

    An interesting and thought provoking argument. Libertarian thinking often plays an important role by forcing us to think through the whys of government action at a very basic level.

    The question I would raise about this essay is whether or not the question of the goodness of government is really a coherent one. I suggest that we are always already addressing the question of what government should do. Even this essay is addressing that question with the answer “almost nothing” and that you recognize that there is at least some need for an organization with a monopoly on legitimate violence. (I assume the “almost” is the protection of basic individual rights, especially those of property. You may be an advocate of returning to privatized policing. However, you don’t sound like you have rushed off to Somalia to find utopia.)

    But because you are always already stuck in the question of what government should do you have to justify and describe the “almost nothing” for the many concrete situations where your fellow citizens raise the claim that “government should do X”. Many reasonable claims exist about addressing market failures, unclear property rights, cultural excesses etc. They require advocates of small government to explain why little or no government response is the right way to go and if the answer is “little” what that little consists of. To withdraw from this discussion will only lead to more government.

    So IMHO in the end the government is good or bad does not get you very far. Yes it does seem paradoxical to see a need for government action to address a problem government has created, but the problem is still there and the practical design of the non-government response still has to be outlined. Such outlining is itself an act of governance.

    • http://greshams-law.com Aftab Singh

      Doug,

      Thanks for your thoughts, very interesting indeed.

      Even this essay is addressing that question with the answer “almost nothing” and that you recognize that there is at least some need for an organization with a monopoly on legitimate violence. (I assume the “almost” is the protection of basic individual rights, especially those of property. You may be an advocate of returning to privatized policing. However, you don’t sound like you have rushed off to Somalia to find utopia.

      This is a great point. My answer is that – to keep consistent – I have to firmly say “nothing” rather than “almost nothing”. That is, I am an advocate of a completely privatised society (that is, a society without a ‘territorial monopolist of compulsion – to quote Hoppe). However, there remains the problem that I – in some sense – do not affirm that conviction (by not running off to Somalia). I would say that I still consider myself as the legitimate owner of myself and my property (and I want to defend that), and that I seek to ‘run off to Somalia’ (metaphorically speaking – I seek to live in the ‘most free’ places in the world).

      They require advocates of small government to explain why little or no government response is the right way to go and if the answer is “little” what that little consists of. To withdraw from this discussion will only lead to more government.

      Indeed, I agree.

      Such outlining is itself an act of governance.

      I don’t see why advocating and outlining a non-government solution (that is, non-use of institutionalised violence) is an act of governance. Perhaps you mean the term “governance” in a different way here. But I think we can say that advocating ‘non-use of violence’ isn’t ‘using institutionalised violence’…

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