Prices Work, Democracy Doesn’t

In order to focus the discussion from the irrelevant and extraneous digressions by certain people, and to make a positive case instead of merely sniping at the ridiculous views held by others, which I prefer to do, I am starting a fresh post. I am also including a reading list, due to the overwhelming requests from my readership. If a person was to diligently study this material they would certainly understand far more about the workings of institutions such as government than had they read all the tripe that ever written by Noam Chomsky – excepting his linguistics work, of course.

This will be a mostly chronological view. The first things that need to be understood are what I will call classical price theory. The advantages of specialization and the concept of comparative advantage due to Smith and Ricardo respectively can be passed over with virtually no comment since the simplest troglodyte can understand them. The marginal revolution of exemplified by the writings of Jevons, Walrus, and Menger are important in understanding how different preferences are ranked by individuals. These ideas were put on a more solid mathematical foundation by Alfred Marshal and others. The devices of supply and demand curves, and also Edgeworth diagrams can help to clarify the expected outcomes of transactions. All of these subjects and more can be found in Alchian and Allen’s magnificent book Exchange and Production. If you read this book and think about the questions, you will have a better understanding of basic economics than 99.7% of the population.

At this point the concept of property rights comes in. With well defined private property rights, individuals can trade at mutually agreeable terms, increasing utility for both parties involved. For example, if you own a widget that you value at $5 and I value at $10, then I can offer you any price between $5 and $10, and if you accept the offer then we are both made better off. Now if I offer $5.50 and you accept, then I am made better off by $4.50, while you are improved by only $0.50. But we have both improved our lot.

When a property is not governed exclusively by the price mechanism, but by other mechanisms there may not be the same societal gains. An extreme example would include the allocation of goods in the Soviet Union, but other examples include the money supply by the Fed and the US military. More obscure examples include identifying the costs of discrimination, the effects of rent control and the even the cost of tenure. These examples can be found in the collected papers of Armen Alchian. There may be reasons to allocate by other than price, but when things can be allocated, there are some obvious benefits.

Democracy

In 1950 Kenneth Arrow proved his famous Impossibility Theorem. This theorem essentially showed that for no voting criteria is it possible to satisfy a few reasonable looking axioms. This can mean that it is impossible to find a voting mechanism that can always find the will of the voters, or it could mean that one of the reasonable looking axioms is not as reasonable as it appears. According to Nobel Economist Paul Samuelson put it this way:”What Kenneth Arrow proved once and for all is that there cannot possibly be … an ideal voting scheme”. Some people might interpret that as “democracy is flawed”. Sen showed that things were worse than Arrow thought in “Can there be a Paratian Liberal”. Economists continued and continue to investigate different axiomatic systems, including weighting preferences instead of simply ranking them and weakening Pareto efficiency.

Gaming the Vote by William Poundstone gives a good introduction to the failure of any voting method. Economists also have investigated voting systems that look very different from our own, such as Condorcet, Borda, Approval, and Range voting. All of these systems fail the Arrow test, which is unavoidable, but they all have different virtues. While all of these systems are subject to tactical voting, some seem to be more robust than others, particularly Range voting. And if there are enough voters, maybe the law of large numbers will make it obvious what the will of the voters is.

But what if there isn’t a “will of the voters”? What if there is only a group of individual wills? James Buchanan and Gordon Tullock analyzed the workings of constitutional democracy in The Calculus of Consent. It turns out that democracies don’t work well in practice, and the reason that it doesn’t is structural. Given the rules of the system, we should expect logrolling, bloating bureaucracy, rent seeking and generally poor performance. Given the system we have, that is the expected output.

So, generally speaking, prices work, voting doesn’t. There are a few caveats. Free riding could be a problem in some cases. Property itself is hard to define. What constitutes a right is hard to define. Some things are common resources, and it may not be possible to assign private rights. Given that, democracy probably works better than, say, dictatorships in assigning rights, but the preference for a price system should be clear.

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11 Responses to “Prices Work, Democracy Doesn’t”

  1. Bill Says:

    One thing you could do to avoid “irrelevant digressions” is to clearly state the proposition you are defending. The point of your post as best I can tell is: a system of prices with a legal system that provides strong protections for property rights maximizes the public good better than democracy does. Is this your central point? A clear statement would help you and others judge which statements are irrelevant.

    Now your argument (trade can maximize utility between trading partners) could be a step in the argument that free trade and property rights can help maximize the public good. Of course at this point, it is merely a step. For example, you could show that trade between individuals typically doesn’t have a negative impact on others. You could discuss how negative externalities in one system relate to the other system. Of course, I am not going to flesh out this argument – that is your task- but it seems that is the direction you are going.

    You used Arrow’s theorem to say that democracy is flawed. For me, a good intuitive explanation for Arrow’s theorem was given in the language of graph theory. Individual preferences are modeled as a directed complete graph. Where the nodes are items (like politicians) and the directed edges are preferences. The basic idea is that even if every individual in a population has consistent preferences, (that is, there are no cycles in their preferences, no examples where they prefer A to B, B to C, but prefer C to A.), a composite preference graph may very well have cycles.

    Now under the criteria that a voting system consistently reflects the will of the people, democracy fails to achieve that goal. But that isn’t the point of Arrow’s theorem. It is that there is no system that achieves the goal. A price system with strong protection for property rights also fails to achieve the goals stated in Arrow’s theorem. So you shouldn’t fault democracy for failing to achieve a goal that your system fails as well.

    The basic argument for democracy is that those who are affected by decisions have some say in those decisions. Of course, there are situations where democracy can be gamed. But laws that would have a large negative impact on the general population would be more difficult to pass. Prime examples are decisions for war. For example, the general population was against the Iraq war prior to the invasion.

    It seems the system you advocate would give more rights to those with more property. So if war would benefit those in a society with more property, war is likely. Now perhaps the system you advocate has better results and can reduce the effects of negative externalities. If you wish to be persuasive, you should endeavor to compare each system on equal footing. At this point you haven’t shown that democracy doesn’t promote the common good better than your recommended system.

  2. darfferrara Says:

    One thing you could do to avoid “irrelevant digressions” is to clearly state the proposition you are defending. The point of your post as best I can tell is: a system of prices with a legal system that provides strong protections for property rights maximizes the public good better than democracy does. Is this your central point? A clear statement would help you and others judge which statements are irrelevant.

    To be fair, you are not the one the tends towards irrelevant digressions. I’m not going to name the person who does, in order not to embarrass this person. What I am claiming is that property right and the price mechanism allow resources to be allocated efficiently. Other mechanisms shouldn’t be expected to work efficiently, democratic political mechanisms least of all.

    Now your argument (trade can maximize utility between trading partners) could be a step in the argument that free trade and property rights can help maximize the public good. Of course at this point, it is merely a step. For example, you could show that trade between individuals typically doesn’t have a negative impact on others. You could discuss how negative externalities in one system relate to the other system. Of course, I am not going to flesh out this argument – that is your task- but it seems that is the direction you are going.

    I haven’t made a very complete argument since many articles and books have been written on the various aspects of private property. Another one of my favorites is Alchian’s article “Some Economics of Property” from Volume 2 of his collected works. I continue to give references to basic results because some of the basic errors that are made by some people. A basic understanding might require more than reading a single blog post by a poor writer.

    You used Arrow’s theorem to say that democracy is flawed. For me, a good intuitive explanation for Arrow’s theorem was given in the language of graph theory. Individual preferences are modeled as a directed complete graph. Where the nodes are items (like politicians) and the directed edges are preferences. The basic idea is that even if every individual in a population has consistent preferences, (that is, there are no cycles in their preferences, no examples where they prefer A to B, B to C, but prefer C to A.), a composite preference graph may very well have cycles.

    This is one way to think of Arrow’s theorem, but Sen’s analysis did away with transitivity. What it seems like is that any voting method that is binary voting (yes, no) method or ordering method won’t always reveal preferences. So even if the public will allowed “good” allocations in some sense, there isn’t any reason to believe that voting will reveal the public will, if such a thing exists. Public choice arguments show that even if the “will” exists and somehow is revealed, it won’t likely be executed.

    Now under the criteria that a voting system consistently reflects the will of the people, democracy fails to achieve that goal. But that isn’t the point of Arrow’s theorem. It is that there is no system that achieves the goal. A price system with strong protection for property rights also fails to achieve the goals stated in Arrow’s theorem. So you shouldn’t fault democracy for failing to achieve a goal that your system fails as well.

    This is another basic error that I mentioned. Voting is a method for determining what a group of people wants. Arrow shows that there is no system for achieving this goal using rankings. On the other hand, how do we determine what the will of two people engaged in a trade is? We’ll, they are trading, so presumably they have determined what their will is, and are acting on that. When two people make a voluntary trade, they have exhibited what their will is. When people trade, their will is revealed. Allocation is a separate issue, but preferences are revealed.

    The basic argument for democracy is that those who are affected by decisions have some say in those decisions. Of course, there are situations where democracy can be gamed. But laws that would have a large negative impact on the general population would be more difficult to pass. Prime examples are decisions for war. For example, the general population was against the Iraq war prior to the invasion.

    Another example that you could use would be the recent Obamacare bill. Once again, the public choice arguments are such that we shouldn’t necessarily expect the voters will to be followed. It is true that sometimes the will of the people is followed in a democracy. But non-democracies often need to respect the will of the people as well. Even dictatorships have to be aware of the will of the people and act accordingly. They are rarely in a position where their power is total. An example I learned while listening to The Teaching Company on Verdi. During the 19th century Italy was ruled by the Habsburg Monarchy. Obviously they wanted to control the media by way of censorship. They continually tried to censor Verdi’s Operas because of their obvious political connotation. But Verdi was already an extremely popular composer, and a feisty fellow. When the censors told him he had to take something out, he fought them. And when push came to shove, the censors always moved further than he did. They couldn’t avoid it, because delaying a popular Verdi opera cost more in public unrest than innuendo that was contained in the opera. If you look at history you’ll find more examples where non-democratic systems follow the “will” of the people, rather than what might seem to be their preferred course of action by the rulers. I make no claim that it happens more or less than in democratic societies, but it certainly happens.

    It seems the system you advocate would give more rights to those with more property. So if war would benefit those in a society with more property, war is likely. Now perhaps the system you advocate has better results and can reduce the effects of negative externalities. If you wish to be persuasive, you should endeavor to compare each system on equal footing. At this point you haven’t shown that democracy doesn’t promote the common good better than your recommended system.

    There are many problems with this statement. First of all you assume that there is a “Common Good”. If by “Common Good” you mean a Pareto improvement in welfare, then I suppose it is possible, but in a nation of 300 million people it is as unlikely as anything. If you mean that overall utility is increased, then I deny that that is common good. Some people lose and some people win, how are we to measure how much people value what is lost and gained by government allocation? There isn’t even a price system to show us how much people value things? Secondly, we have had war for the last 9 years. The general populace has been against the war for about the last five years. This is in a democracy. Doesn’t that strike you as odd? Apparently voting hasn’t gotten the will of the people accomplished. Possibly the reason that it hasn’t happened is that the allocation of the military force is not done by the price mechanism.

    And finally, you state that the system I advocate will give more rights to those with more property. This is not correct. Point A, I haven’t embraced an entire system, I’ve only indicated the viability of certain mechanisms. If I was to design a system I would push a system where if the price mechanism was available it should be used. It is almost certainly true that certain things can’t be allocated well by the price mechanism. Point B, using a price mechanism everyone has the same rights. Those rights are essentially the exclusive right to use or trade that which they own. Point C, Do you think that democracies give everyone equal rights? Even if it was a direct democracy, the smarter people would have more rights (power) by knowing how to manipulate the parliamentary rules, the better looking people would have more rights by being more convincing to their fellow citizens, those with large families or communities would have more rights by pooling, logrolling, what have you. Is it your desire to make everyone equal? You can try that, but I think you’ll find that no matter how you work it, some people will be more equal than others.

  3. Jon Says:

    I’m not quite sure what the argument is or if I would disagree. Prices do “work” if by “work” you mean the information contained in them makes for useful transactions between the parties involved. The parties that are not involved in these transactions though aren’t necessarily well served by the transaction. That’s where government comes in.

    Yeah, Smith and Ricardo are right about division of labor. They’re right not only in their discussion of comparative advantage, but also right in that taken to the extreme, as a totally free market might lead, they create humans that are as stupid and ignorant as it is possible to be, and we need the government to step in and prevent that.

    As Bill points out, nobody is claiming that democracy is perfect. But it’s better than plutonomy. Democratic forces were huge following the plutonomy years of the 20’s. New Deal measures were imposed, largely due to a huge infusion of democracy. Unions are democratic institutions. They organized and achieved enormous things. You want to focus on property rights. Let’s call them investors rights. Same thing for the most part, right? The propertied people are pretty much the largest stock holders. So investors aren’t going to give these gifts away. Popular movements struggle for them and restore democracy. Democratic forces are largely responsible for the speech freedoms we have today. The war in Vietnam was unpopular, so people broke laws and spoke even though it was illegal. They were prepared to suffer for them, but they went to court and won, and today we live in a country with freedom of speech that exists like nowhere else in the world. Democracy brought that about.

    The investor class has largely resisted many of what I regard as the best policies we have, and the investor class has pushed legislation that is among the worst we have. I was just reading about telecom immunity and how the telecoms simply funneled money straight into the pockets of the key Congressional leaders in order to grant them the right to have broken the law the previous several years. That’s a government that is responsive to the propertied class and non-responsive to the public, as your Public Choice Theory would predict. It was extremely unpopular with the public. My view is that we need to make our institutions more democratic to improve things. Do you disagree? Because it seems to me your view is to strengthen the hand of the investor class (property rights). I see that as the root of the problem.

  4. darfferrara Says:

    Wow, what a screed! It’s a perfect blend of incomprehensibility, confusion, lack of interaction with the the ideas being discussed, as well as pride in your ignorance. I’m really interested in trying to understand where such a confusion of ideas comes from. In my opinion, this rant is what Chomsky would say if he weren’t worried about looking like a fool.

    When you say “That’s where government comes in” you seem to imply that government will right the wrongs caused by third party costs. Do you think that the recent performance of the government indicates that it has done that well? Do you think that there are other mechanisms that could work in mediating third party costs? In some cases could assigning property rights differently solve the problem of third party costs?

    You say that Smith and Ricardo thought that a “totally free market” (whatever that means in your mind) might lead to humans that are as stupid and ignorant as possible. Smith wasn’t aware of the theory of evolution. If he had been, do you think he would believe that insulating people from the decisions that they make would increase learning, or decrease it?

    The rest of your harangue is such a jumbled mess of ideas that I don’t even know where to start. You seem to confuse means and ends, you decide that investor rights is equivalent to property rights, since you won’t read anything where you would learn about property rights, you throw out assertions that democracy brought about New Deal measures (which I guess you assume are good) by Democracy without any thought or analysis to back that up. I’m not sure how to parse your sentence on Public Choice.

    You seem to imply that plutonomy (your new favorite word) was caused by free market forces. I’m going to quote from Sen’s paper “The Impossibility of a Paretian Liberal”.

    Using the condition of the independence of irrelevant alternatives, A. Gibbard,[…] has proved the following important theorem: Any social decision function that must generate social preferences that are all transitive in the strict relation and which must satisfy Conditions U, P, non-dictatorship, and the independence of irrelevant alternatives, must be an oligarchy in the sense that there is a unique group of individuals each of whom, by preferring x to y, can make the society regard x to be at least as good as y […] and by preferring x to y can make the society prefer x to y , irrespective of the preference of those who are not in this group. Gibbards’s Theorem is disturbing, for the conditions look appealing but the resultant oligarchy seems revolting, and it is a major extension of the problem posed by Arrow.

    Here we have a Nobel winning economist who says that all reasonable voting systems (democracies), must lead to oligarchy. This was proven mathematically. Some people consider math a science. I understand that you believe in science, but only when it proves global warming is true. On your side you have Chomsky saying “Virtual Senate, Plutonomy!! The sky is falling because of unrestrained capitalism, which I haven’t taken the time to understand!!”

    Bill makes mistakes (as do I), but he also takes the time to interact with the arguments on the other side and learn from them. You read a Chomsky and assume that he’s right because it would take too much effort to understand other arguments. Two years ago you would have been 100% sure that soy was always bad, and two years before that you would have been walking around in the dead of winter without a coat because you read something online that said it was healthy or something.I’m aware that I have my own shortcomings, but for someone who claims to be a follower of “science”, you have a way of ignoring it when stares you in the face.

  5. Jon Says:

    Like the word “conspiracy” it seems you don’t know what “screed” means or that it in fact aptly describes your post, not mine. Screeds often involve a lot by way of personal, substance free attack. Look in my post for ad hominem. You don’t find any. It’s throughout your post.

    You talk a lot about Chomsky as if name dropping and ridiculing him and my admiration for him is somehow relevant to the discussion. Frankly I’m not ashamed that I read a person that is widely regarded as the worlds premier public intellectual. He is the most frequently cited living human. But even if he weren’t, dropping his name as you frequently do has no relevance to the substance of the argument. Another fallacy, this one a red herring.

    Then comes the straw man. I “seem to imply” government will right the wrongs, as if my government’s recent efforts have done just that. In fact I say the opposite, but I’m not going to explain my actual view again here. You should know it by now. With these comments you act like you don’t understand it, but that may be intentional.

    Next you have non-argued for assertions. I confuse means and ends. OK, maybe I do, maybe I don’t. But since you don’t attempt to justify the claim I can’t evaluate it.

    Your objections to my claims about democracy and New Deal measures are typical of your hostility. I don’t necessarily know which points you would dispute and which you wouldn’t. If you disagree the way normal, non hostile people react would be to simply ask for evidence. Then it’s in my court to provide it. For you it’s time to talk about “harangues” and how my thoughts are a “jumbled mess.” If you’re interested in exchanging ideas, perhaps enlightening me to things I don’t know but should, the former method is more likely to lead to success. If that’s not the goal, but the goal is just trying to troll or be irritating, well you’re doing that well.

    Are my thoughts a jumbled mess? Maybe. As I said I don’t know what you’re arguing so I made some comments that I thought might tease out a clear expression of what your point is. Maybe my comments are far afield. OK. Why don’t you tell us what you’re arguing and I’ll try to get on track?

    This quote is perfect. Very typical for you. A statement with several key terms left undefined. There’s no way to know what it actually means. That’s just exactly what you’re always doing. Offering statements that you must know are incomprehensible without further clarification, and then triumphantly proclaiming that this settles the question.

    You say that this statement shows that “all reasonable voting systems” lead to oligarchy. No, that’s not what the statement shows. At least as far as what you’ve offered. What it claims is that a system that meets some undefined conditions (U,P) and some others (non-dictatorship, independence) would have to be an oligarchy.

    Now, maybe if we knew what these conditions were and maybe if we knew that these conditions and only these conditions are what we should strive to meet then we could conclude that only an oligarchy would work. If you want to provide more of the evidence required to justify that claim, feel free. To become indignant that I don’t go out and find and present the evidence you need to justify your argument is simply irrational in my view for reasons I’ve already explained. They have to do with “burden of proof” and ontological parsimony”.

    Note that when I offered that I didn’t just name drop the terms. I explained the relevance of the terms so you could understand how your method of argumentation is not persuasive or reasonable. But you can look up the terms for further clarification if you like. I think that’s a far more reasonable approach. I want to be persuasive, so what I do is I strive to stand in the shoes of my opponent and discover points of agreement. I then work out the logical consequences of those agreements. Debates need to start with shared values and facts. If I offer a fact that I don’t expect that you know I explain the fact and how we know it. I wouldn’t expect you to be convinced based on premises that you don’t understand. But you don’t seem to get that. You think I should be persuaded by facts that I don’t understand. But that would be irrational. If you want to convince me you should walk in my shoes and attempt to understand what it is I do understand and what I don’t. If I don’t understand something what is the point of building an argument on it?

    Maybe Bill goes the extra mile. You offer some vague, undefined concepts and pretend they prove you right, and Bill goes out and looks into it and shows that you are being unreasonable. Or maybe Bill is already familiar with your undefined concepts so it’s easy for him to go out and do your work for you, showing that what you offer is nonsensical. Good for him that he does, but for you to think I’m obligated to do the same is unreasonable. You can either make an argument or not. If you aren’t going to bother you shouldn’t expect people to be persuaded by what you offer.

    Soy and coats? Seriously? These are total non-sequiturs as I’ve already explained and you’ve ignored. Am I asking you to accept conclusions based on the fact that I have a perfect track record? No. I make arguments based on evidence. If you can’t refute the arguments, running to soy does not make them go away.

  6. darfferrara Says:

    You think this is abuse? You can’t take this, how can you take the abuse you get on a sit?
    Beside, if you can’t be obnoxious on the internet, then the terrorists have won.

    If you make arguments based on evidence, then what is your evidence that democracy works well? I’ll give you a list

    1) Chomsky says so.
    2) Unions are democratic somehow and achieved great things, whatever that means.
    3) During the ’30s democracy reigned and the New Deal was great. This ignores the fact that there weren’t really any structural changes to the democratic institutions from the ’20s (excepting FDR attempting to pack the court), and the fact that you don’t want to learn the tools that would be nessesary to understand whether or not the New Deal was a good thing or not.
    4) Darf is mean.

    Against Democracy we have

    1) Arrow showing that there is no possible fair voting system.
    2) Sen showing that there isn’t any voting system that preserves minimal liberalism.
    3) Gibbard–Satterthwaite theorem showing that voting systems are oligarchic.
    4) Public Choice arguments that indicating that government systems shouldn’t be expected to work well even if they could be inferred by some method.

    The evidence is that you don’t make your decisions based on evidence.

  7. Jon Says:

    None of those 4 points are in fact against democracy because to oppose democracy you have to offer a better alternative. If democracy has all the problems that you describe, and yet it’s better than any other alternatives, then it is still the preferred system.

    Arrow says there is no way to have a perfectly fair voting system. I’ll grant that. Is your alternative fair? No. So democracy is unfair, but so is every other system. So we can’t conclude on that basis that we should reject democracy.

    Under liberalism you basically should be free to do things that don’t impose costs on others. Is that close to what Sen means with preserving liberalism? So Sen tells us that a voting system will not permit that in all cases. Sometimes really what you do doesn’t affect others, but in a democratic society you will be restricted anyway. So I suppose if I wanted to smoke pot, even though it probably doesn’t hurt anybody, on democracy I might not be able to. Yeah, that’s too bad. But does that mean we should prefer to extend the power of totalitarian institutions like private businesses, so they can create a society where they restrict your freedom? Or they offer you the following choice: You can work 14 hours/day in a factory or you can starve. There. You’re free. The incentive structure is such that they would strive to create those conditions, whereas the incentive structure of a true democracy would resist that. I’m willing to forego pot to avoid a worse alternative.

    You have yet to show point 3 and from what you offer that doesn’t seem to be what he’s saying. He’s saying that only an oligarchy would satisfy certain conditions. That may be true, but that doesn’t mean we should prefer an oligarchy. Oligarchy comes with other costs. So I would say we should be comfortable with the fact that we can’t meet all the conditions he described perfectly. Stick with democracy. Because if we go with oligarchy we’re going to have other enormous problems, like the problems we presently have with the fate of the species in the balance.

    And no, I don’t expect the government to work “well” if “well” means perfect or right all the time. It’s that the alternative to a democratic government (as contrasted with the government we presently have, which is not democratic) is much worse.

    You confuse the claim that democracy is imperfect with the claim that lack of democracy would be better. Another non-sequitur.

  8. Jon Says:

    Hey, let me ask something just to help clarify this “prices only” system you advocate. Let’s use a real world example.

    Say we’re using your system. No democracy. No government. Suppose I own a business that’s lucrative, but an inventor is developing something that would obsolete my product. So I hire an assassin. It’s costly. Say, $10K. But it’s worthwhile to the assassin and me. He’d be willing to do it for $5K and I’d pay $20K since my whole business is in jeopardy. This is a good transaction. We know our own preferences better than an outsider so we should go forward without interference. We’ve improved our utility. I’m better off. The assassin is better off.

    There are externalities. The world will be deprived of the inventors innovation. The inventor will suffer (he’ll be dead). His family will suffer. But that’s not part of the transaction that’s occurring between me and the assassin. On your view this transaction should go forward. How do you deal with that situation? Seems the whole system is rife with this kind of a transaction and there’s nothing to stop it. Maybe the externality is the fate of the species. Maybe nuclear war. How do you address these things?

  9. darfferrara Says:

    This is from my response to Bill

    I haven’t embraced an entire system, I’ve only indicated the viability of certain mechanisms. If I was to design a system I would push a system where if the price mechanism was available it should be used. It is almost certainly true that certain things can’t be allocated well by the price mechanism.

    Friedman has made a case for private policing, but I’m not sure that it’s viable.

    To turn it back on you, suppose that rent-seeking corporations seek to stifle competition by imposing tariffs on foreign goods. Suppose unions seek to prevent non-unions workers from volentarily contracting with employers. Suppose doctors and lawyers seek to regulate their services in order to artificially lower the supply of the needed service. All of these things impose costs on society that are higher than the gains of the special interest, and yet unchecked democracy encourages these practices. Furthermore, what about wars of aggression? Maybe our country on balance does benefit financially from invading Iraq. But there are unimaginably large costs to the Iraqi people. The war came about because the American people were behind it. You can talk about what opinion is now, but at the time the invasion was very popular. This is what unrestricted democracy leads to.

  10. Jon Says:

    I don’t see that you have an answer to my question. Private policing is more of the same. Policing will be so as to maximize profits. “Criminals” will be inventors that are a threat to my profit margins, etc.

    The solutions to the problems you raise against democracy are to simply make the government more democratic. Every problem you raised is resolved if the will of the public is followed. It’s not clear to me that “right to work” is good. But I could be wrong. Go with democracy. Yes, special interests can gain a foothold in democratic governments so yeah, you have to resist that, but democracy can overcome that and has done so in the past. In much of the world it happens today.

    Consider Iraq. The war was supported by 33% of the population in our country. The Israeli public was the only country that had a population that wanted the US to invade Iraq. After the war was initiated people did go the O’Reilly route and get behind the troops now that the decision has been made. So support jumped after March 2003 and has since fallen back. So once again if we had democracy we’d never have initiated war. In Spain they sent troops despite 90% opposition, so what happened in the next election was the bums were voted out and the troops were withdrawn. That’s way more democratic than our country and way better. Of course Spain was denounced as caving to the terrorists by the media and government here for being so outrageous as having followed the will of the people.

    Externalities are the big problem I see with your system. The two greatest potential causes of massive human death and catastrophe are caused by those that engage in transactions that divert much of the costs to the public at large. Democracy can conceivably stop this. Might not work, but I see no other system that could plausibly resist it. I don’t understand how a prices only system would even address the problem.

  11. darfferrara Says:

    Sticking to your Iraq story, invading Iraq was supported by a plurality at least, and a majority depending on what question was asked. From wikipedia “Seven months prior to the September 11 attacks a Gallup poll showed that 52% would favor an invasion of Iraq while 42% would oppose it”, “about 60% of those polled also supported, if necessary, the use of military action to remove Saddam from power”,”polls also showed that the majority of Americans believed that President Bush had made his case against Iraq”, “The Gallup poll, for example, found that 67% of those who watched the speech felt that the case had been made”. You are wrong, the majority was behind the invasion from the start and through the early stages of the war. And the war was a giant pile of externality.

    Obviously what is meant by a poll is heavily influenced by what question is asked. A firm understanding of Arrow’s theorem would help you to understand that there isn’t a foolproof way to interpret any poll as a group decision procedure. Understanding that pollsters have an agenda might lead you to believe that they will adjust the types of questions and the number of questions to show what they want shown.

    You see externalities as being the problem for a price system (that you haven’t taken the time to understand) even though you have clear evidence that democracy in the US has lead to huge externalities? Maybe you should take the time to learn about how a price system deals with externalities. I’m sure that would be too much work though. You should read the latest Chomsky book. He might say something different than he usually does, and you wouldn’t want to miss that.

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