Wednesday, December 28, 2005

The One Purpose of Government

I've decided on a simple purpose for Government. It is the regulation of externalities, nothing more.

Quite simple, but it applies to almost anything. The thrill or whatever of murdering someone may be worth the guilt and murdering costs in a completely free world for some, but the costs that are not covered by them include the family grief and denial of life. Therefore, punishment for criminal behaviour does not have to be covered under a "no coercion", separate rule, but covered under one rule. That being to have as many costs and benefits as possible covered by the one responsible.

What other things fall under this rule? Intellectual property can be defined under this, a positive externality. If I invent something that will save a net $100 for everybody in my community, without some form of intellectual property rights, I will not receive anyway close to the full benefits of my invention. If I had a choice between creating something that will save $100 for 100 people or $1000 for me, I have a strong incentive to choose the latter. In the case of intellectual property law, the argument is often made that is not necessary, since one could still profit without it. That is not the point.

Ideally, properly costing all externalities would create the most efficient society possible. However, in many cases the amount of work required to calculate such an externality could create more distortions than remove, which may make it unnecessary. So the exact point to draw the line could be a matter of debate between political parties.

A further externality to regulate is an international one, or at least between differnent electorates. The cause of all pork barrel politics and trade barriers are a result of Governments not paying the full costs of their actions. Without a proper power designed to regulate this, the world will suffer as a result. A politician has no reason to work in the interests of a citizen who cannot vote for them, therefore they are free to perform actions that will help their constituents at the expense of another. While this action will be theoretically help the politician get re-elected, the detrimental effects are not realized by them.

It's basically game theory. Many actions are taken thesedays that are not of mutual benefit to society, but will nonetheless assist one party.

Polluting Good:
Net payoff to owner: +5
Costs to society: -2

Clean Good:
Net payoff to owner: +4
Costs to society: +0

In game theory, it makes sense to produce the polluting good, as it is more beneficial to the owner, although it is worse for all. By appropriately taxing, Governments can ensure game theory will result in as fewer mutually detrimental outcomes as possible.


Anonymous CutFoldGlue said...

Heh, which side are you on :D

5:10 PM  

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