Thursday, July 21, 2005

Changing Incentives

The question, "Can we change the system of incentives so that it is compatible with a truly limited government?" is one that people have struggled with for centuries. The U.S. Constitution was written to establish a self-limiting government deriving its power from the people, but like any document formed by humans even with the utmost care, it is not perfect.

If I am found to have violated your rights, I go to jail. What is a politician's incentive to uphold the Constitution? Will he face jail sentences, fines, anything? No, instead of punishment, they receive more votes! It's easy to blame special interests, politicians and voters for shirking their stated responsibilities and acting in their own self interest. Look at some of the solutions proposed thus far:
  • Abolish Special Interests: impossible - there are always people willing to give up someone else's rights when it benefits them; as long as it is profitable for special interests to pay politicians for favorable legislation, they will continue to do so. They'll find ways around that law.
  • Campaign Finance Reform: you can lobby all you want, politicians can grant you special favors, but you are not free to contribute your money as you see fit. Might a law such as this be a violation of free speech? Might it also violate your property rights -- the right to give away or dispose of your property as you wish? Not to mention the ways around that one: "how about instead of paying the politician now, we just offer him a high paying job at the end of his term?"
  • Better Candidates: of course! We need politicians who don't listen to lobbyists, who don't like having power, and who don't want money. Two problems: (1) those people, assuming their existence, rarely enter politics, and (2) if they did, would they succeed? The system of incentives is not in their favor.
  • Better Voters: to vote for whom?

Notice that all of these solutions ignore the system of incentives as it currently exists. Politicians and special interests rely on one thing: the ability of government to transfer your property or require you to spend more to obtain the same product (via subsidies, tariffs, protection of monopolies/cartels, and other regulations that you never even know exist). Take away this ability and what do you have? Special interests have no reason to lobby for legislation they can't obtain. They'd be wasting their money. Think for a moment about how much money is funneled through lobbying efforts for merely the chance of obtaining a bit of legislation in the special interest's favor. What does this tell you? It tells me two things: the payoff of the legislation is potentially very high, and the likelihood of its existence is also high. If it was truly a gamble where the odds were not stacked in their favor, those special interests would take their money to Vegas. The only way to prevent special interests from influencing politicians is to reduce the odds of obtaining favorable legislation or reduce the potential payoff. Reduce them by eliminating government's power to violate your rights for someone else's benefit. Make consequences for politicians who violate your rights, just as consequences exist if you violate another's rights.

Next: Implementation - what we might do differently.

To be continued ...

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