helmuth_hubener
Banned
- Joined
- Nov 28, 2007
- Messages
- 9,484
So, this has gone on long enough I suppose. I don't know that it's really worth my time to think about Pragmatarianism, much less argue against it, but Rothbard condescended to address Georgism, and am I better than he? So let's at last look closer at Pragmatarianism.
At least one element has been notably missing in the Pragmatarian's discussions of his proposal, and that is rigor. Careful, rigorous, line-upon-line thought, designed to get at the definite truth of things. That element which he has scorned I will undertake to embrace.
Our buddy Bastiat, has given us a key. He says the bad economist looks only at the obvious -- that which can be perceived immediately. Looks only at the first effects, ignores all further consequences.
Pragmatarianism is the proposal that taxpayers earmark their taxes to go to certain purposes. The taxpayer still must pay the same amount of taxes; that does not change. But he directs what programs the money is spent on (probably by filling out some sort of form) and his directions must be obeyed.
In this case, what is the obvious? Choice > non-choice. Inject choice into a situation and that will be better than the situation without choice. And that's as deep as the Pragmatarian ever cares to dig. Choice is good; choice is freedom. Non-choice is bad; non-choice is central-planning. Choice lets everyone take their own perspectives into account and weigh their opportunity costs and exercise consumer sovereignty and leverage decentralized knowledge and in short bring every economic buzzword the Pragmatarian knows of into action to create the most optimal and efficient outcome possible.
Are there any less obvious things to consider? Any secondary or tertiary effects? Any other considerations?
Let's go back and consider why choice is economically beneficial at all. What happens in a transaction on a free market? Party A meets with Party B and together they agree to swap goods because A values B's goods more than his own goods which he gives up for them, and B vice versa. We know that they are both better off, because if they were not they would not have made the swap in the first place, since the transaction is voluntary. Because both A and B have been left free to make whatever transactions they like, we know that whatever transactions take place are ones which improve the well-being of all involved. No one would intentionally and voluntarily choose to make a transaction which is detrimental to their interests, any more than they would choose to engage in any action detrimental to them. Thus, giving free choice free reign leads inevitably to economic benefit.
What is happening in a Pragmatarian transaction? We can immediately see several stark differences between a Pragmatarian transaction and a free market transaction as described above. In a free market transaction, the terms are guaranteed to be favorable to both parties, because the terms are completely open-ended -- they need not be anything in particular, because ultimately, the transaction need not even take place! If the transaction does take place, we know that it was favorable to both parties, for both parties have complete control over what they agree to, and a final unappealable veto over the whole business. Every factor is open to negotiation: the type of goods purchased, the number of goods, from whom one is purchasing them, the price paid for them, the reversibility and other terms of the exchange, etc. The Pragmatarian transaction is very different indeed.
In a Pragmatarian transaction, Party A is the taxpayer, Party B is the state.
Type of Goods Purchased
Party A determines what type of goods he is going to acquire (by earmarking his tax dollars to go to certain programs), and Party B has no say in the matter. Also, through legal tender laws requiring taxes to be paid in legal tender, Party B determines what type of goods he is going to acquire, and Party A has no say in that matter. This is in contrast to the free market transaction, wherein both parties mutually decide what type of goods will change hands. In a Pragmatarian transaction, both decide unilaterally what type of goods they want, and force the other party to provide it to them, whether they like it or not.
Number of Goods Purchased
While Party A, the taxpayer, determines via earmarking what type of goods he will purchase, he does not determine the quantity of those goods he will receive. That is determined unilaterally by Party B; Party A has no say in it. That is, "A" may say: I wish to put $1,000 of my taxes towards building a new road, but he cannot determine just how much road he is going to get for $1,000 -- that will be up to the State. He is not purchasing "twenty feet of road" as he would purchase twenty gallons of milk or 20 square feet of factory space; he is purchasing "as much road as $1,000 will get me," and just how much that is is left wholly up to the discretion of Party B. This is quite important, since the quantity of goods is usually a major factor in the decision-making processes of economic actors. While twenty pounds of butter for $5 may be a good deal, a teaspoon of butter for $5 may not be such an attractive offer, and the actor may choose to forgo the latter exchange while they would have jumped at the former. Removing quantities from consideration makes it a very different situation for calculation. Instead of "20 lbs. butter" or "1 tsp. butter," all that is available to the consumer is "butter," just "butter" -- take it or leave it. Pure, platonic butter, as a concept, not as finite units.
From Whom Goods are Purchased
In a Pragmatarian transaction Party A has no choice as to who will be his trading partner. In a free market transaction, even if one party seems to have a stronger bargaining position, to have the upper hand, so to speak, his power is mitigated by the fact that others can provide the good he is offering, and most often they are providing it at that very time. A is not bound to trade with B and only B, he can go to C instead. This introduces the factor of competition, a factor which famously plays a very large role in the market. Few would call a system without free competition a free market system.
So, in a Pragmatarian transaction, there is one vendor: the state. A will be making his purchase from B. That is the end of the story. That is how it will be. There is no C. Thus, B occupies an overwhelmingly and disproportionately strong position in the transaction. There are no alternative vendors, neither extant nor which could theoretically arise, to mitigate his power in the least. B has a coercively-maintained monopoly over the market. This transaction's lopsided power disparity means that its terms will likely not be very favorable to A, and will be very favorable to B. The powerful monopolist, B, is likely to benefit quite a bit from such a transaction, while the hamstrung and weak A is not likely to benefit very much, if at all.
Also because of this lack of choice in trading partners, the forces of free competition will be non-existent, forces which are so successful in driving forward innovation, efficiency, and progress of all kinds. The Pragmatarian will contest this, claiming that competition does exist, between the various agencies or divisions of the state. The road division will compete with the police division, each attempting to gain the consumer dollar. This is a contrived and very partial form of competition, though, and one without the power of true, full, and free competition. Free competition means first and foremost: free entry. In the artificial quasi-competition of Pragmatarianism, each division of the state is a monopoly kingdom, with absolute hegemony over its domain. No one else can come in and start offering to provide roads or police services. Such a new upstart would be bopped on the head and his venture razed to the ground. No, this is a kind of mercantilism, each division with a clearly defined and static domain, and that is its "turf," which it owns forever and no one can come in and compete with it on its "turf." This is a stagnant and artificial "market," and very much in contrast to the dynamic, open, ever-changing market of free entry and thus free competition.
Total Size of the Transaction
In the free market, the total size of transaction is up to the parties involved. One might choose to buy a single Quarter Pounder, or a five-pound roll of ground beef, or to go to the farmer and buy the whole cow. In a Pragmatarian transaction, on the other hand, the size of the transaction is a given. The price A will pay is fixed. That price is his tax bill, and what that total comes to is a completely separate issue from Pragmatarianism, not coming under its loving purview.
So what does this mean? For one thing, it eliminates the opportunity cost of the transaction from consideration entirely. No longer will Mr. A weigh the benefits of spending one additional dollar on beef vs. the foregone joy of spending one additional dollar on funny hats. Now any alternative joys are already foregone; he has no choice about it. It's a done deal. No need to weigh anything. His tax bill is what it is and there's nothing he can do about it. He's giving $10,000 to the beef man this year and that's it.
For another thing: the Pragmatarian likes to take each individual earmark that A makes ($20 to French diplomacy, $200 for zero-gravity toiletries) as a separate transaction. This fiction makes his construct appear superficially slightly more like a market. However it is fiction. In reality, the entire tax payment is one transaction. The transaction is not divisible and separable. One cannot itemize the separate items on the tax bill and treat them as separate transactions. One can often do exactly this in a world of market transactions, because in that case each separate line-item could have, in theory, not taken place, had the purchaser decided not to purchase it. Thus the main cable service, the movie channels, and the extra WWF channel, could all be considered either one big purchase or as separate purchases, because each is separable and terminable. If the consumer had chosen to forgo the joy of world wrestling, his bill would have been $20 less, so he did in a sense pay $20 for the wrestling. That is not true for the line-items in a Pragmatarian transaction. In that case, the price is set. Mr. A may cancel the wrestling, but he's not going to get his $20 back; he merely gets to redirect it towards some other good that B offers. The tax payment must be considered as one lump transaction, even if the taxpayer directs it to be spent in 500 separate divisions.
Consequences
What results can we expect to come about due to the nature of a Pragmatarian transaction and its differences from a free market transaction? Some have been mentioned as we went along: lack of the forces of free competition, disproportionate power for B and weakness for A, lack of ability to take into consideration opportunity cost external to the transaction, etc.
Another interesting dilemma is that Party A is no longer able to ordinally rank discrete units of goods in terms of their value to him. This means that the forces of the diamond/water paradox will be in full swing. What is the diamond/water paradox? If given the choice between water or diamonds in an absolute sense, everyone would choose water. Water is fundamentally essential to life; diamonds are mere frippery. Yet diamonds are very expensive, water is virtually free, indicating that diamonds' value is high, while water's value is low. Why? Only considering goods in term of units can this be solved. You may prefer all the water in the world to all the diamonds in the world, sure, but we never make that choice. We choose between units, between this particular gallon of water and this particular diamond ring. And in that case, since we already have 10,000 gallons of water a month, it might indeed be more valuable to us to have a diamond ring rather than another 500,000 gallons of water. But what happens if we are artificially flung into a bizarre system wherein we must choose between diamonds and water as pure concepts, with no units? If everyone knows that water is more important, will anyone ever choose diamonds?
The perverse incentive problems of the state are still in full swing as well. A good way for a division to get more funding will be to fail horribly at its given task. Then people, wanting the service, will have no choice but to earmark more taxes to that division. This perverse incentive for failure and incompetence will be stronger the more indispensable the the division's services are (or are perceived to be).
The Pragmatarian system lowers the transaction cost of participating in the auction of government largess. It essentially is a program which makes it easy and effortless to "be a lobbyist from the comfort of your own home." I will draw a parallel between it and the negative income tax. The negative income tax (or guaranteed minimum income) is the idea that people with incomes less than such-and-such just receive a check, automatically. No bureaucracy, no hassles, no case workers, no filling out applications and getting approved. You just get money. Seems like it would be an improvement over our current convoluted welfare system, right? I do not think so. I think the bureaucracy and the hassles of the current system is its only saving grace preventing it from destroying the poor even more rapidly and thoroughly than it already is. The red tape and the hoops you've got to go through and the whole demeaning process is a barrier to entry which prevents many people from going on welfare. The hassle is a transaction cost. Remove all that and yes, the system would be more efficient, but when the system is destructive, is efficiency really what you want? Likewise the Pragmatarian trumpets his system's "efficiency." It may be more efficient, but more efficient at what? It will be more efficient at allowing extremely large numbers of people to have control over the disposition of state largesse. It lowers the transaction cost of participating in that great auction that is state spending. Pragmatarianism makes it easy to be a consumer of tax dollars. No longer must you be a professional lobbyist and move to Washington. No longer must you represent an interest at least large enough to support such a professional lobbyist. Every interest group, no matter how small, can now have a say, and an incontestable say, in how tax dollars are spent. Only .01% of the population might want to spend money on Urban Giraffe Attack Wargames, but if they check that box on their Pragmatarian tax forms, ain't nothin' nobody can do to stop 'em. The giraffes are going to be coming to a street near you.
Can we make any predictions as to what kind of "purchases" people will make, given that:
The transaction is a given, as is its size -- A has no choice but to spend the money.
With the greatest of ease, A can choose to spend it on whatever he wants.
Pragmatarianism doubtless puts some sort of restraints on what type of things can be purchased. I do not know what specific rules and constraints any given implementation of Pragmatarianism will have. But I can predict that one of the major behaviors these rules will seek to prevent is that of somehow earmarking the money back to oneself. If everyone is earmarking what their tax bill is going towards, they will, naturally, earmark those things which will benefit themselves the most. If permitted to, they will earmark money for upgrading the road in front of their home, but none for the road across town. Within the education division, we can expect to see (proportionally) more continuing adult education and less children's education, as the extremely numerous childless adult households earmark the funds in a self-interested way. One man will earmark money for a water-slide in the state pool he frequents, another for the library he loves. This brings up the question of the granularity of the earmarking system -- will A be able to earmark funds for particular books, or only for a particular library, or only for the library system in general? This is a question which I have never seen a pragmatarian address, but then again it is a mere question of implementation. There are many such questions, many potentially problematic, but my focus in this essay has been to focus on the economic effects of Pragmatarianism, assuming it could be implemented somehow. In that context, we can only draw the conclusion that A's earmarking will be such that -- limited by whatever rules exist -- it comes as close as he can possibly get to simply writing a check back to himself.
Pragmatarianism: A Closer Look
At least one element has been notably missing in the Pragmatarian's discussions of his proposal, and that is rigor. Careful, rigorous, line-upon-line thought, designed to get at the definite truth of things. That element which he has scorned I will undertake to embrace.
Our buddy Bastiat, has given us a key. He says the bad economist looks only at the obvious -- that which can be perceived immediately. Looks only at the first effects, ignores all further consequences.
Pragmatarianism is the proposal that taxpayers earmark their taxes to go to certain purposes. The taxpayer still must pay the same amount of taxes; that does not change. But he directs what programs the money is spent on (probably by filling out some sort of form) and his directions must be obeyed.
In this case, what is the obvious? Choice > non-choice. Inject choice into a situation and that will be better than the situation without choice. And that's as deep as the Pragmatarian ever cares to dig. Choice is good; choice is freedom. Non-choice is bad; non-choice is central-planning. Choice lets everyone take their own perspectives into account and weigh their opportunity costs and exercise consumer sovereignty and leverage decentralized knowledge and in short bring every economic buzzword the Pragmatarian knows of into action to create the most optimal and efficient outcome possible.
Are there any less obvious things to consider? Any secondary or tertiary effects? Any other considerations?
Let's go back and consider why choice is economically beneficial at all. What happens in a transaction on a free market? Party A meets with Party B and together they agree to swap goods because A values B's goods more than his own goods which he gives up for them, and B vice versa. We know that they are both better off, because if they were not they would not have made the swap in the first place, since the transaction is voluntary. Because both A and B have been left free to make whatever transactions they like, we know that whatever transactions take place are ones which improve the well-being of all involved. No one would intentionally and voluntarily choose to make a transaction which is detrimental to their interests, any more than they would choose to engage in any action detrimental to them. Thus, giving free choice free reign leads inevitably to economic benefit.
What is happening in a Pragmatarian transaction? We can immediately see several stark differences between a Pragmatarian transaction and a free market transaction as described above. In a free market transaction, the terms are guaranteed to be favorable to both parties, because the terms are completely open-ended -- they need not be anything in particular, because ultimately, the transaction need not even take place! If the transaction does take place, we know that it was favorable to both parties, for both parties have complete control over what they agree to, and a final unappealable veto over the whole business. Every factor is open to negotiation: the type of goods purchased, the number of goods, from whom one is purchasing them, the price paid for them, the reversibility and other terms of the exchange, etc. The Pragmatarian transaction is very different indeed.
In a Pragmatarian transaction, Party A is the taxpayer, Party B is the state.
Type of Goods Purchased
Party A determines what type of goods he is going to acquire (by earmarking his tax dollars to go to certain programs), and Party B has no say in the matter. Also, through legal tender laws requiring taxes to be paid in legal tender, Party B determines what type of goods he is going to acquire, and Party A has no say in that matter. This is in contrast to the free market transaction, wherein both parties mutually decide what type of goods will change hands. In a Pragmatarian transaction, both decide unilaterally what type of goods they want, and force the other party to provide it to them, whether they like it or not.
Number of Goods Purchased
While Party A, the taxpayer, determines via earmarking what type of goods he will purchase, he does not determine the quantity of those goods he will receive. That is determined unilaterally by Party B; Party A has no say in it. That is, "A" may say: I wish to put $1,000 of my taxes towards building a new road, but he cannot determine just how much road he is going to get for $1,000 -- that will be up to the State. He is not purchasing "twenty feet of road" as he would purchase twenty gallons of milk or 20 square feet of factory space; he is purchasing "as much road as $1,000 will get me," and just how much that is is left wholly up to the discretion of Party B. This is quite important, since the quantity of goods is usually a major factor in the decision-making processes of economic actors. While twenty pounds of butter for $5 may be a good deal, a teaspoon of butter for $5 may not be such an attractive offer, and the actor may choose to forgo the latter exchange while they would have jumped at the former. Removing quantities from consideration makes it a very different situation for calculation. Instead of "20 lbs. butter" or "1 tsp. butter," all that is available to the consumer is "butter," just "butter" -- take it or leave it. Pure, platonic butter, as a concept, not as finite units.
From Whom Goods are Purchased
In a Pragmatarian transaction Party A has no choice as to who will be his trading partner. In a free market transaction, even if one party seems to have a stronger bargaining position, to have the upper hand, so to speak, his power is mitigated by the fact that others can provide the good he is offering, and most often they are providing it at that very time. A is not bound to trade with B and only B, he can go to C instead. This introduces the factor of competition, a factor which famously plays a very large role in the market. Few would call a system without free competition a free market system.
So, in a Pragmatarian transaction, there is one vendor: the state. A will be making his purchase from B. That is the end of the story. That is how it will be. There is no C. Thus, B occupies an overwhelmingly and disproportionately strong position in the transaction. There are no alternative vendors, neither extant nor which could theoretically arise, to mitigate his power in the least. B has a coercively-maintained monopoly over the market. This transaction's lopsided power disparity means that its terms will likely not be very favorable to A, and will be very favorable to B. The powerful monopolist, B, is likely to benefit quite a bit from such a transaction, while the hamstrung and weak A is not likely to benefit very much, if at all.
Also because of this lack of choice in trading partners, the forces of free competition will be non-existent, forces which are so successful in driving forward innovation, efficiency, and progress of all kinds. The Pragmatarian will contest this, claiming that competition does exist, between the various agencies or divisions of the state. The road division will compete with the police division, each attempting to gain the consumer dollar. This is a contrived and very partial form of competition, though, and one without the power of true, full, and free competition. Free competition means first and foremost: free entry. In the artificial quasi-competition of Pragmatarianism, each division of the state is a monopoly kingdom, with absolute hegemony over its domain. No one else can come in and start offering to provide roads or police services. Such a new upstart would be bopped on the head and his venture razed to the ground. No, this is a kind of mercantilism, each division with a clearly defined and static domain, and that is its "turf," which it owns forever and no one can come in and compete with it on its "turf." This is a stagnant and artificial "market," and very much in contrast to the dynamic, open, ever-changing market of free entry and thus free competition.
Total Size of the Transaction
In the free market, the total size of transaction is up to the parties involved. One might choose to buy a single Quarter Pounder, or a five-pound roll of ground beef, or to go to the farmer and buy the whole cow. In a Pragmatarian transaction, on the other hand, the size of the transaction is a given. The price A will pay is fixed. That price is his tax bill, and what that total comes to is a completely separate issue from Pragmatarianism, not coming under its loving purview.
So what does this mean? For one thing, it eliminates the opportunity cost of the transaction from consideration entirely. No longer will Mr. A weigh the benefits of spending one additional dollar on beef vs. the foregone joy of spending one additional dollar on funny hats. Now any alternative joys are already foregone; he has no choice about it. It's a done deal. No need to weigh anything. His tax bill is what it is and there's nothing he can do about it. He's giving $10,000 to the beef man this year and that's it.
For another thing: the Pragmatarian likes to take each individual earmark that A makes ($20 to French diplomacy, $200 for zero-gravity toiletries) as a separate transaction. This fiction makes his construct appear superficially slightly more like a market. However it is fiction. In reality, the entire tax payment is one transaction. The transaction is not divisible and separable. One cannot itemize the separate items on the tax bill and treat them as separate transactions. One can often do exactly this in a world of market transactions, because in that case each separate line-item could have, in theory, not taken place, had the purchaser decided not to purchase it. Thus the main cable service, the movie channels, and the extra WWF channel, could all be considered either one big purchase or as separate purchases, because each is separable and terminable. If the consumer had chosen to forgo the joy of world wrestling, his bill would have been $20 less, so he did in a sense pay $20 for the wrestling. That is not true for the line-items in a Pragmatarian transaction. In that case, the price is set. Mr. A may cancel the wrestling, but he's not going to get his $20 back; he merely gets to redirect it towards some other good that B offers. The tax payment must be considered as one lump transaction, even if the taxpayer directs it to be spent in 500 separate divisions.
Consequences
What results can we expect to come about due to the nature of a Pragmatarian transaction and its differences from a free market transaction? Some have been mentioned as we went along: lack of the forces of free competition, disproportionate power for B and weakness for A, lack of ability to take into consideration opportunity cost external to the transaction, etc.
Another interesting dilemma is that Party A is no longer able to ordinally rank discrete units of goods in terms of their value to him. This means that the forces of the diamond/water paradox will be in full swing. What is the diamond/water paradox? If given the choice between water or diamonds in an absolute sense, everyone would choose water. Water is fundamentally essential to life; diamonds are mere frippery. Yet diamonds are very expensive, water is virtually free, indicating that diamonds' value is high, while water's value is low. Why? Only considering goods in term of units can this be solved. You may prefer all the water in the world to all the diamonds in the world, sure, but we never make that choice. We choose between units, between this particular gallon of water and this particular diamond ring. And in that case, since we already have 10,000 gallons of water a month, it might indeed be more valuable to us to have a diamond ring rather than another 500,000 gallons of water. But what happens if we are artificially flung into a bizarre system wherein we must choose between diamonds and water as pure concepts, with no units? If everyone knows that water is more important, will anyone ever choose diamonds?
The perverse incentive problems of the state are still in full swing as well. A good way for a division to get more funding will be to fail horribly at its given task. Then people, wanting the service, will have no choice but to earmark more taxes to that division. This perverse incentive for failure and incompetence will be stronger the more indispensable the the division's services are (or are perceived to be).
The Pragmatarian system lowers the transaction cost of participating in the auction of government largess. It essentially is a program which makes it easy and effortless to "be a lobbyist from the comfort of your own home." I will draw a parallel between it and the negative income tax. The negative income tax (or guaranteed minimum income) is the idea that people with incomes less than such-and-such just receive a check, automatically. No bureaucracy, no hassles, no case workers, no filling out applications and getting approved. You just get money. Seems like it would be an improvement over our current convoluted welfare system, right? I do not think so. I think the bureaucracy and the hassles of the current system is its only saving grace preventing it from destroying the poor even more rapidly and thoroughly than it already is. The red tape and the hoops you've got to go through and the whole demeaning process is a barrier to entry which prevents many people from going on welfare. The hassle is a transaction cost. Remove all that and yes, the system would be more efficient, but when the system is destructive, is efficiency really what you want? Likewise the Pragmatarian trumpets his system's "efficiency." It may be more efficient, but more efficient at what? It will be more efficient at allowing extremely large numbers of people to have control over the disposition of state largesse. It lowers the transaction cost of participating in that great auction that is state spending. Pragmatarianism makes it easy to be a consumer of tax dollars. No longer must you be a professional lobbyist and move to Washington. No longer must you represent an interest at least large enough to support such a professional lobbyist. Every interest group, no matter how small, can now have a say, and an incontestable say, in how tax dollars are spent. Only .01% of the population might want to spend money on Urban Giraffe Attack Wargames, but if they check that box on their Pragmatarian tax forms, ain't nothin' nobody can do to stop 'em. The giraffes are going to be coming to a street near you.
Can we make any predictions as to what kind of "purchases" people will make, given that:
The transaction is a given, as is its size -- A has no choice but to spend the money.
With the greatest of ease, A can choose to spend it on whatever he wants.
Pragmatarianism doubtless puts some sort of restraints on what type of things can be purchased. I do not know what specific rules and constraints any given implementation of Pragmatarianism will have. But I can predict that one of the major behaviors these rules will seek to prevent is that of somehow earmarking the money back to oneself. If everyone is earmarking what their tax bill is going towards, they will, naturally, earmark those things which will benefit themselves the most. If permitted to, they will earmark money for upgrading the road in front of their home, but none for the road across town. Within the education division, we can expect to see (proportionally) more continuing adult education and less children's education, as the extremely numerous childless adult households earmark the funds in a self-interested way. One man will earmark money for a water-slide in the state pool he frequents, another for the library he loves. This brings up the question of the granularity of the earmarking system -- will A be able to earmark funds for particular books, or only for a particular library, or only for the library system in general? This is a question which I have never seen a pragmatarian address, but then again it is a mere question of implementation. There are many such questions, many potentially problematic, but my focus in this essay has been to focus on the economic effects of Pragmatarianism, assuming it could be implemented somehow. In that context, we can only draw the conclusion that A's earmarking will be such that -- limited by whatever rules exist -- it comes as close as he can possibly get to simply writing a check back to himself.
