Scale, Scope and the Political Economy of the State

|Peter Boettke|

In response to a question from the audience at the recent MPS meeting, I invoked a thought experiment that James Buchanan has asked students of public economics to consider.  "It is said," Buchanan starts, "that a fly that grew 9 times its size could no longer fly."  "What does that imply for the fiscal dimensionality of the state?," he would ask.  Buchanan never directly answered the question himself.  If he knew the answer already, they wouldn't call it research.  Buchanan's entire approach to teaching was (is) an invitation to inquiry guided by the core principles of economics, not an exposition of received wisdom offered from on high.

Despite Buchanan's constitutional stance and in fact an embracing of normative issues in social philosophy, if one looks closely at his methodological position as laid out in "Positive Economics, Welfare Economics and Political Economy", Buchanan is a positive political economist and not just a normative political philosopher trapped in an economists mind.  Despite the radical stance that I take in political economy, I also operate under the delusion that I too am doing positive political economy rather than normative political philosophy and that critics that think otherwise are in fact failing to state my position correctly.

Anyway, back to the fly.  Buchanan's question is one of scale I pointed out to the audience.  While I consider questions of scale important, they are not as important in my mind as those of scope.  Perhaps the fly cannot fly if it grew 9 times its size, but the fly also cannot teach economics.  If we keep asking it to do that, then we will be frustrated.  The fly can do many tasks very well, but it cannot do other tasks all that well and other tasks it simply cannot do at all.  To insist that the fly do those tasks it doesn't do well, or those tasks that it is constitutionally unable to accomplish, is a recipe for disaster.

There are questions of scale and scope.  We should restrict state action to those tasks, and only those tasks, that government can do well.  Buchanan's work does not ignore these issues of scale and scope.  He is basically an advocate of a strong minimal state.  The appropriate role of government is to accomplish the task of providing for the protective state (law and order, and defense) and the productive state (essential public goods) while not succumbing to the redistributive state (rent-seeking).  I find this puzzle intellectual fascinating, but I am not sure it has a viable solution that is empirically robust.  Perhaps the scope of government is much more restricted than even this nightwatchman vision of the state.  Perhaps a fly can only really fly, and not do much else; perhaps a state can really only institutionalize predation and not much else.  If that was in fact true, then what would be the positive political economy of the state?

As I pointed out to the audience at MPS, the history of classical liberal thought is filled with examples of leading thinkers becoming frustrated with their earlier attempts to constrain the state in terms of scale and scope.  More and more elaborate methods of "tying the rulers' hands" have been proposed only to be abandoned in frustration.  As I said, Hayek didn't write The Denationalization of Money when he was 31, he wrote it rather late in life after a lifetime of thought on how to get monetary policy rules adopted and followed.  If, as Hayek also wrote, the state has corrupted not only money, but also law, markets, and morality, then where are we to go?  Is the positive political economy conclusion of the analysis of such an empirical reality one that would say that perhaps destatization is the only way to resolve the dilemma?  As I said, what if our best efforts to tame the beast all fail, our only conclusion is that perhaps we need to stop trying to retrain the beast but instead stab it (or in the fly metaphor swat it).  In the case of monetary policy, we might reluctantly have to conclude that efforts to bind a government monopoly supplier of the currency have failed and that the only way to resolve the problem is to eliminate the government from the business of monetary policy.

The fly cannot teach economics (or raise your kids; care for your parents; care for you), don't ask the fly whether small or big to even try.  Perhaps the only way to win the game with the state is to not play that game at all.  The problems of the state relate to scale no doubt, but more importantly in my mind to questions of scope.  Flies should only fly, and if they try to do anything else, we need the flyswatters to get to work.  To my mind, the most effective flyswatters in affairs of state has always been from Smith to Say; from Mises to Hayek; from Bastiat to Friedman, the economic way of thinking.

Comments

[Lee Kelly]

An excerpt from Robert Higgs's "If Men Were Angels" was recently published on the Mises Institute website: http://mises.org/daily/4784.

Given that men are not angels, he claims that anarchy is preferable to any government. That is not to say anarchy is good. Higgs maintains, with typical optimism, that both scenrios are bad -- anarchy is merely preferable. I am not convinced by Higgs's argument, though I am sympathetic to it. Perhaps the problem is that when I hear "anarchy" I think "government", despite the apparent contradiction.

For now, I am with Buchanan: a strong minimal state is preferable to no state at all. Though I would amend it to: many small strong minimal states.

[Ben Powell]

As the audience member who asked the question...

I wish more of this had been in the answer. I felt that many in the audience hadn't gotten the radical anti-state message in Pete's talk so I was trying to draw him out and make him be clear... and he started his answer with the damn fly! To his credit he eventually got to "slay the beast" which might have been the best line of the conference.

But I don't recall hearing this: "Perhaps a fly can only really fly, and not do much else; perhaps a state can really only institutionalize predation and not much else. If that was in fact true, then what would be the positive political economy of the state?" which would have been great for them to hear.

All in all, Pete's talk was one of the best highlights of the conference. Well, that and wine tasting.

Ben
PS I see you didn't post a picture of a swimming cat at least!

[J. Scott Moody]

I've spent a lot of time studying the economic and political differences between Maine and New Hampshire to better understand why NH has better economic outcomes. Having lived in both states now, I've come to the conclusion that it is the institutional differences between the two states--NH has done a better job at containing Leviathan.

NH has the third largest elected body in the free-world (400 members in the House) and is the only state that still retains an executive council (regional governors) and has a weak Governor in general. In a nutshell, it is very difficult to get anything done, politically-speaking, in NH which has been a big help in controlling spending enabling them to get away with no broad-based income or sales tax.

A picture is worth a thousands words, see this chart for a an economic comparison of ME versus NH: http://wealthalchemyblog.com/2010/08/the-state-of-americas-private-sector-ii/

[Richard Ebeling]

The world has always had thieves and con-artists, and probably always will. Unfortunately, trying to get something you have not honestly earned is as much a part of human nature, as the "mark" of the con-artist, who wants to get something for nothing (or least less than what it normally costs).

What enables civil society to work is that in most of daily life we follow "internal rules" not to lie, cheat, or steal, even when we know (or believe) that we might get away with it. And we often don't fall into the trap of being "conned," because most of the time we are suspicious of those things we know are "too good to be true."

Constitutions and other rules limiting the size, scope, and scale of government can succeed in working a good part of the time when most people believe in following the same "internal rules" in their view and attitude toward the political process.

In general, government was more limited in Great Britain and the United States in that (partly true) "golden age" of 19th century liberalism because people viewed the role of government and the scope and desirability of individual freedom differently than many people today.

The fact is, too many people in contemporary times accept (to use Bastiat's term) "legalized plunder" because they do not consider it "plunder."

Many years ago, I once asked Ron Paul what surprised him the most when he first was elected to the House of Representatives. He said that it was the discovery that two arguments, if presented on the floor of the House, would get you laughed at: "It is immoral" or "It is unconstitutional."

Clearly, the vast majority of those in politics don't believe that certain things are no more "right" when done in politics than in private life. And to suggest so was a "joke."

For a number of years in the 1990s, I was giving keynote addresses at a series of state conventions of the Farm Bureau associations. When I spoke to "older" farmers (those, say, in their 60s or 70s, or older), they told me that they accepted government farm subsidies, but did not consider them "right," and would, in principle, prefer a farm world without them.

On the other hand, their sons or grandsons (those under, say, 40 or 50) did not take this attitude. Having always lived in a world in which government "participated" in agriculture, they considered it the ordinary "order of things." Government subsidies were as legitimate as a source of farm income as revenues from selling their crops on the market.

In today's world, the political hucksters and snake-oil salesmen are not viewed as such, by themselves or by many of those to whom they offer those government "elixirs" of life (anti-competitive regulations, redistributions of wealth, trade protectionism, production subsidies, government "stimulated" jobs, etc.).

This suggests to me that any hope of reducing and restraining the size, scope, and scale of government requires a moral, intellectual and cultural shift in society.

Even suggesting this, I know, sounds like a Herculean task. But we did not get into the current political and ideological climate over night. It took years and decades to get many people to accept, believe in, and desire the interventionist-welfare state.

Sometimes a "crisis" can serve as a catalyst for such changes. (This was a theme in Mancur Olson's "The Rise and Decline of Nations.") Perhaps the fiscal and debt crises affecting the United States and much of Europe today may serve as part of the "stimulus" for the start of such a societal "re-think."

But what is crucial for such a shift in the "climate of opinion" is enough individuals (including us market-oriented economists) helping our fellow citizens to understand the causes behind the present situation, and what a "better world" can and should look like.

Richard Ebeling

[Jerry O'Driscoll]

Well said, Richard. I agree on the moral dimension of the crisis.

[Pietro M.]

I was sure Powell would have commented about wine. Greetings from Sestri! :-)

[David Andersson]

I think the inter-jurisdictional angle that J. Scott Moody is alluding to is extremely important, but unfortunately missing from a lot of debates regarding anarchy vs. minimal state vs. small state vs. the welfare stare vs. the totalitarian state. Actually, it might be possible to combine a preference for small-state jurisdictions and inter-jurisdictional "anarchy." If we have free trade, migration, and capital flows between a multitude of jurisdictions (say tens of thousands rather than the 200 nation states we have today), it may be possible - through trial and error and fuzzy migration and investment signals -- to stumble upon reasonably attractive government policies. The Swiss, for example, have much better (yes, better) governments than the rest of Europe by means of more direct democracy and greater regional/cantonal autonomy than is the case elsewhere. For example, a majority of voters have to approve tax hikes in referendums and the small size of the cantons (much smaller than US states) make voting with your feet associated with moderate transaction costs.

Why am I saying all this? Because so-called "ordered anarchy" is difficult to visualize in practice as anything other than a multitude of mini-dictatorships that rely for the most part on might-is-right private occupation of land. You may object that it could be occupied by conscientious homesteaders instead, but couldn't one also say that a unanimity of classical liberals would make the inter-jurisdictional perspective especially attractive too? However, it seems that the realism of small open democratic jurisdictions is not quite as big a step as abolishing the state in its entirety, and that already today small states that compete for people and investments have restrained the superstates to some extent (the examples set by Hong Kong, Switzerland, Luxembourg etc. which are all terribly imperfect, but unambiguously institutionally superior to their larger neighbors such as China, France and Belgium).

[Troy Camplin]

I have always considered the income tax and the direct election of senators as two of the worst things put into the U.S. Constitution. After David's comments, I'm going to have to add Public Law 62-5, which set the number of members of the United States House of Representatives at 435 to that. Is it any surprise that all these laws were passed in the 1910's, the height of populism? The authors of the law were afraid that as the House became larger and larger, it would become unweildy. Yes, it would have. Much to the Founders' delight, I think.

The U.S. was originally set up as a poly-centric hierarchy of representative governments. One of those levels is the county level, which should be functioning as the most powerful government in anyone's lives. It's easier to move from one county to another than from one state to another. So the U.S. is actually already structured to be "broken up" into David's smaller governments. At the same time, there might be something in having a law that states that any state that reaches a certin number of citizens must be divided (and here's an idea: and all laws of that former state declared null and void, with the state having to create its own new laws from scratch).

A few thoughts off the top of my head. The more chaos we can create in government, the more stability we'll see in our society and even in our governance. Order and chaos must be in balance -- in society as in nature. If government is too orderly, the result is political and social chaos; if the government is in (nonviolent) chaos, the result is political and social order.

[J. Scott Moody]

Troy Camplin, I agree with your assessment that the county should play a greater role in our Republic. However, that level of government is under assault. In Maine, it is virtually agreed among both the left and right that county governments are duplicative and an unnecessary administrative burden.

We would be better off if more policy was decided amongst the 3,000 plus counties rather than the 50 states and most certainly the single federal government. But rather than breaking-up states, wouldn't it be easier to give counties a greater say in the affairs of higher jurisdictions? Maybe Senators shouldn't come from states, but rather from counties?

So if we strip the House limit, I've read somewhere we would have over 4,000 representatives today. And if we had 1 senator per county, we would have over 3,000 senators, hhhmmm . . .

[Troy Camplin]

Seems to me like such numbers of politicians could create a real coordination problem . . .