Saturday, February 13, 2010

Government, part I

In the course of our public discourse on government and the economy, I have been increasingly struck by what seems to be the universally accepted view on the relationship between these two.  I’m struck by this accepted relationship because it seems to me to be completely wrong.

Whenever I read of anyone writing about the economy, it always comes across that the author views the economy as this perhaps ideal market (if he is a conservative) or otherwise a market troubled by failures of one sort or another (if he is a liberal) and that government is this outside agency that in various ways reaches down to the otherwise isolated market and “interferes” with it.  The conservative sees this interference as always damaging to the welfare of the world, and the liberal see it as necessary to fix failures in the market.

I think both are nonsense.  The government is no more some outside agency that reaches in to interfere with the economy than the sun is some kind of outside agency that reaches in to interfere with the environment.  The sun is part of the environment , the government is part of the market. 

Consider as an example: The goods we produce and the labor we provide are more valuable when there are people available to transport those goods to distant places where they can be traded more broadly and can command other goods not found nearby.  Those of us who produce the goods here pay to those who transport them a portion of the resultant increase in value.  This is trade, this is commerce and it is the basic operation of a market.

In much the same way, our goods and labor are more valuable in a region of general peace and security than they would be where security is absent.  Like the porters in the previous paragraph, the government provides that security, and therefore for exactly the same reasons as any other actor in the market, it charges upon the beneficiaries of the service a portion of that increase in value.  This charge, particularly for security (which is certainly the primary, but not the only service provided by government) goes by the name of taxes, and can certainly be imposed in a manner that is either just or unjust, fair or unfair, but is, in principal, no different from any other charge imposed by any other actor.

The government then, in my view, is just another actor in the economy, in the market, providing services, charging for those services and spending the revenue on being able to continue those services and/or providing benefits to the nation as a whole (its owner’s and operator’s).  One might note that I list the government as providing services only, not goods and/or services as other actors do.  It is the case that government provides only services, not goods, however, that is a superficial difference.  Other actors are in the same situation and the role of goods is substantially the same as services in the market.

Government does have some unique characteristics, but they are few.  The most significant and substantive way in which government is a unique actor will have a powerful impact on how the government should be organized, but does not have any significance for government’s role in the economy.  Government is granted the unique power to declare certain acts to be criminal and to therefore impose enormous additional costs (fines, imprisonment, death) upon those who engage in them.  People recognize that this is necessary is we are to have a peaceful and secure society.  No other entity is allowed to do this. Related to this unique power is the requirement that government be a monopoly.  If each citizen is free to choose his own government, and therefore the laws he must obey and the punishments for transgression, then we have no government at all.  That is the perfect definition of anarchy.

Beyond this characteristic, government has some unique powers, but all can still be characterized as providing services and charging money for them.  The services it provides may be wise or foolish, and the charges it imposes might be fair or unfair, but the idea that government is “interfering” in the market is generally nonsense. 

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