Government Tendencies

Regardless of the normative conclusions of the economics of government and society, its study reveals some interesting phenomena:

1.) The Dilemma of Enlightened Policy

Say you’re a politician. You want to regulate the financial industry to prevent another collapse a la 2008.

Case A: If you write the bill yourself (or have your aides do it, or someone in your pocket, etc.), it will be woefully unequipped to control the financial industry, because you are not a financier and therefore do not understand their world as well as they do. Simply put: Who are we to govern people whose world we do not understand? That lack of understanding becomes poor policy, no matter your intentions.

Case B: If you ask a financier for advice in writing the bill, the financier is influenced by his vestments and associations so that, even given the best intentions, s/he is biased to develop policy that helps her clan more than it hurts (or, rarely, hurt them more than it helps the consumer). In asking a financier to develop financial regulation, you are asking the financial industry to regulate itself, or worse, giving them power to regulate their foes. If you assume self-regulation doesn’t work and therefore external regulation is necessary, return to case A. If you assume self-regulation works, then you don’t try to regulate the industry in the first place.

In effect, a politician seeking to regulate an industry must choose between ineffective policy or rigged policy.

2.) The Problem of Power Concentration

As power becomes more concentrated, it becomes easier to purchase and more susceptible to corruption. Centralized agencies are generally easier to administer, but are susceptible to this problem. Thus, power dispersion is key to a more efficient society, because it minimizes corruption.


2 thoughts on “Government Tendencies

    • Hey Neal! Thanks for commenting.

      James Madison states: “Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.”

      I don’t know where Madison is getting his data. Direct democracies are generally stable, though often uninspiring. Athenian democracy and Swiss democracy are good examples.

      Madison is essentially arguing in favor of the republic on the grounds of technocracy: by electing a few particularly able citizens rather than leaving decisions to the masses, we get better legislation. He asserts that the masses are capable of choosing such particularly able citizens, but not of legislating solutions for themselves. This makes some sense: a private citizen doesn’t require much training to hire a capable plumber, but needs considerable time and effort to become one himself. The problem lies in that we do not elect plumbers, or rather technocrats, but politicians, whose strength and renown arrive not from the enlightened nature of their legislation, but from how well they can stir the passions of their electorate. Republics like China’s curry some great technocrats due to its structure, but their republic alienates the citizenry, and suffers considerable distance from their needs and desires. They then fall prey to corruption and abuse, which illuminates another dangerous dichotomy: in designing a republic, the architect(s) must balance the ineptitude of representatives with how corrupt and abusive those representives will be. No matter where you fall in that balance, the republic you build sucks.

      The problem Madison is trying to solve — tyranny of the majority — is built into the nature of democracy. Democracy’s defining strength is that feature: governance of the people, by the people, for the people. Putting “most of” or “some of” in front of “by” does not “solve” what is essentially democracy’s greatest strength and most crippling weakness.

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