Thursday, February 02, 2012

Beginning the Marginal Revolution (if I could)

I was asked what I would do if I could begin to make changes in the political economy of the United States. Of course, being a Hayekian and spontaneous order scholar, I understand that the changes that need to take place have to be marginal changes. You have to keep in mind the fact that all changes have to take place within the context of the rules that already exist.

Thus, one has to consider what the elimination of a given regulation will cause to happen. The last thing you want to do is deregulate in such a way that you end up with people demanding to reregulate, because other regulations on the books are now causing different problems. We have to remember that when the government "solves" a problem, it creates regulations that in turn cause their own problems, that the government then blames the market so they can put on more regulations, etc. in a vicious circle. That being the case, one has to be careful, because simply removing the last regulation put in place may result in the problems the layer of regulations preceding it caused. To the extent possible, an analysis of regulatory cause-and-effect would have to be done to figure out how to dismantle the regulations in such a way that few problems would occur.

At the very least, it seems to me that we need to do away with socializing loss. This allows companies to justify taking much greater risks than they would otherwise take, since the profit will be theirs, but the loss will be spread out among the citizens of the country. I suspect a lot of regulations can go once we do this.

Another thing we could do right away is get rid of corporate welfare. There should be no subsidies. Subsidies distort the market, and they go to the already-established as it is.

Remove barriers to entry to allow competition. All federal barriers to entry could be removed, and the states would then be in a position of either adopting them themselves or letting the barriers go away. With competition among the states, there would likely be fewer barriers over time. Indeed, simply de-federalizing most legislation would allow for spontaneous order marginal changes to take place, since competition among the states for both businesses and workers would likely encourage moves toward market reforms, since free markets are most productive.

I would implement a simple flat tax. That would reduce the tax bureaucracy considerably and release a lot of tax lawyers and accountants to do something that creates economic wealth and value.

I would replace all welfare programs, including social security, with a basic income guarantee.

I would begin procedures to decentralize our banking system with the goal of the creation of a free banking system. With local banking responding to local conditions, monetary recessions and depressions would become a thing of the past (except insofar as the rest of the world continues to have central monetary planning, that is -- still, much of that would be considerably moderated by the ability of local banks to react to local conditions).

Cutting military spending and getting us out of everyplace on earth would go a long way to paying down the debt, as would the economic boom that would take place as people were freed to pursue their economic interests and create more new businesses and, thus, jobs. This would help bring interest rates in line with the natural interest rate of interest, too. Having true free trade with the rest of the world (regardless of what they do) would also benefit our economy considerably, as lower prices benefit everyone.

I would also defederalize the drug war.

This all seems like a lot, but in fact much of it really is just tinkering around the edges. There is much more that would have to be done. But simply de-federalizing much of what we do would make a huge difference. Our government should have a power-law distribution of power, like every other natural self-organizing process. The more we move away from such a distribution, the less natural our government and economy become -- and the weaker and less wealthy we all become.
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