I’ve spent much of the past cou­ple of years try­ing to explain my polit­i­cal phi­los­o­phy. It’s hard to do, though, because it’s not par­tic­u­larly simple.

Oh, sure, to most con­ser­v­a­tives I prob­a­bly look like a rag­ing lib­eral, look­ing for­ward to the day when gov­ern­ment owns all forms of com­merce in a nice, lib­eral utopia of col­lec­tivism. I sus­pect I look mighty con­ser­v­a­tive to hard­core lib­eral peo­ple. But all of that turns into caricature.

Part of the prob­lem is that I’m forced to describe my polit­i­cal views through peep­holes. It would take an entire book to describe it in its entirety. And so I end up feel­ing like I write “fan”, “wall”, “rope”, and “tree” arti­cles when I’m try­ing to describe the elephant.

Today I’d like to come closer to writ­ing an “ele­phant” arti­cle, draw­ing upon those pre­vi­ous ones.

I’m quite the fan (!) of free mar­kets. A truly free mar­ket has the fol­low­ing characteristics:

  • No bar­ri­ers to entry or exit
  • Per­fectly avail­able infor­ma­tion to both buy­ers and sellers
  • No affected par­ties in a trans­ac­tion besides the buy­ers and sellers

A truly free mar­ket is sort of like the per­fectly elas­tic bod­ies or per­fectly fric­tion­less sur­faces in clas­si­cal mechan­ics. They’re won­der­ful tools in acad­e­mia to describe fun­da­men­tal prin­ci­ples. And they make ter­rific start­ing points upon which to layer the imper­fec­tions of the real world, so as to address the inevitable addi­tional com­plex­ity made nec­es­sary by those imperfections.

This means that there is no such thing as a truly free mar­ket, in the same way that there is no such thing as a fric­tion­less sur­face. If we built machines with the assump­tion that there was no fric­tion, the machines would not work. Sim­i­larly, when we build mar­kets assum­ing that they are per­fectly free, they don’t work, either. We should no more be sur­prised that the free mar­kets fail us than we should be sur­prised that machines built for a fric­tion­less world fail us.

At the same time, acknowl­edg­ing that there is no such thing as a truly free mar­ket doesn’t inval­i­date the under­ly­ing the­ory, any more than intro­duc­ing fric­tion inval­i­dates the law of iner­tia. Mak­ing mar­kets work, then, requires acknowl­edg­ing the higher orders of com­plex­ity that we are forced to layer upon the fun­da­men­tal principles.

In many respects, then, good gov­ern­ment reg­u­la­tion is oil for machines. It reduces the fric­tion that comes from cost exter­nal­i­ties, or imper­fect infor­ma­tion, or bar­ri­ers to entry or exit. Let me pro­vide some exam­ples of each in turn.

I’ll take them in reverse, start­ing with bar­ri­ers. Any time there is a nat­ural scarcity of a resource, there are bar­ri­ers to entry. The whole rea­son com­pa­nies attempt to achieve monop­o­lies is that they are inher­ently insur­mount­able bar­ri­ers to entry for com­peti­tors, which allows for the busi­ness to cap­ture a purely demand-​​based income. That is, the price is based entirely on the demand for the prod­uct, typ­i­cally at the point where prof­its are max­i­mized. When there are no bar­ri­ers to entry, income is supply-​​based instead; prices fall to a point close to the mar­ginal sup­ply cost. As entry bar­ri­ers rise, then, prices move along that con­tin­uüm between the mar­ginal sup­ply cost and the max­i­mum profit price.

In my view, gov­ern­ment should, then, aim to min­i­mize bar­ri­ers to entry, with the excep­tion of intel­lec­tual prop­erty. Since the value is in the idea, rather than the prod­uct, it does make sense for there to be a tem­po­rary monop­oly granted to the cre­ator of the idea. But copy­right law has gone too far when that monop­oly is essen­tially granted in per­pe­tu­ity. It makes a mock­ery of the fun­da­men­tal behind it, which is to encour­age explor­ing new ideas.

How can gov­ern­ment do bet­ter in this area? How about pro­hibit­ing exclu­sive con­tracts? Every exclu­sive con­tract cre­ates monop­o­lies. They sti­fle com­pe­ti­tion. They ulti­mately cost con­sumers more for the same goods, which puts a drag on the econ­omy. Our com­merce laws should aim to min­i­mize bar­ri­ers to entry and bar­ri­ers to exit mar­kets. I rec­og­nize that this pol­icy is viewed as hos­tile toward busi­ness. In a sense, that’s true. Busi­nesses, like the peo­ple who run them, are lazy. They want to get prof­its with min­i­mal effort. When a busi­ness is able to achieve a monop­oly, there is no longer incen­tive to inno­vate. To the extent that monop­o­lies are coun­tered, prof­its are reduced. But we all get more for our money, and we get more rapid inno­va­tion. It’s a ris­ing tide that ulti­mately lifts all boats.

That’s not to say that there is always value in frag­ment­ing a mar­ket fur­ther. To a point, busi­nesses can gain economies of scale and economies of scope by grow­ing. In fact, those economies can lead to lower prices and greater value as well. But that exists only as long as com­pe­ti­tion remains high and bar­ri­ers to entry and exit remain low.

And not all mar­kets are able to sup­port low bar­ri­ers. For exam­ple, it isn’t cost-​​effective to run power lines for mul­ti­ple power sup­ply com­pa­nies in most com­mu­ni­ties (although San Fran­cisco has two com­pletely sep­a­rate power sys­tems: a pub­lic one for gov­ern­ment and a pri­vate one for the res­i­dents). Nor does it make sense to have mul­ti­ple waste col­lec­tion com­pa­nies. So one entity ends up being granted a monop­oly. Per­haps it’s government-​​run, or per­haps it’s a con­tracted pri­vate com­pany. In those cases, though, gov­ern­ment is oblig­ated to man­age the pric­ing and ser­vice, because there is no option for com­pe­ti­tion. Our gov­ern­ment does us a dis­ser­vice when we are unable to val­i­date that we are get­ting the ser­vice we deserve at a fair price. And in order to do this we need access to free information.

And free infor­ma­tion is the next pil­lar of a free mar­ket. If we can­not trust the item we are pur­chas­ing, and com­pare it to sub­sti­tutes, we can­not have a free mar­ket. If we had unlim­ited time to com­par­i­son shop, and unlim­ited capac­ity to learn, we would have a much eas­ier time mak­ing well-​​informed deci­sions. But we don’t. We are forced to take short­cuts. This is why we end up trust­ing spe­cial­ists, whether they work for pri­vate indus­try or for gov­ern­ment. It’s why we should feel threat­ened when politi­cians attempt to under­mine our trust in spe­cial­ists. Reduc­ing our trust in spe­cial­ists makes us poorer eco­nom­i­cally, because it makes us poorer in our eco­nomic deci­sions. It takes us away from freer mar­kets. Gov­ern­ment should be doing every­thing pos­si­ble to encour­age bet­ter infor­ma­tion, par­tic­u­larly since many busi­nesses ben­e­fit by avoid­ing dis­clo­sure. It’s poor infor­ma­tion that led peo­ple to invest in real estate deriv­a­tives nearly a decade ago, and con­tributed might­ily to our worst reces­sion since the 1930s.

And it’s poor infor­ma­tion that leads us to throw our global cli­mate out of whack, which will hurt our soci­ety for gen­er­a­tions to come…a huge cost externality.

I dis­cussed cost exter­nal­i­ties in “Blow­ing Our Inher­i­tance”, where I described tem­po­ral costs — where one gen­er­a­tion is forced to bear the cost that trans­lates to another generation’s ben­e­fit. But these exter­nal­i­ties show up all over the place. When I drive my car, I get the ben­e­fit of quickly get­ting to my des­ti­na­tion. It’s a ben­e­fit to one per­son. The pol­lu­tion I gen­er­ate affects any­where from thou­sands to bil­lions of peo­ple (depend­ing on the type of pol­lu­tion). The costs may be infin­i­tes­i­mally small from my lone act of dri­ving to the gro­cery store, but when you mul­ti­ply that infin­i­tes­i­mally small num­ber by a huge num­ber of peo­ple per­form­ing the same action, the aggre­gate cost is sig­nif­i­cant. So we each gain a large amount of ben­e­fit from each action, while bur­den­ing the rest of the world a small amount, but col­lec­tively we may all be worse off in the end.

What if we had to pay money to every­one in the world for the bur­dens we cause? I’m not talk­ing about a penny to each per­son each time we drive. That would be far too high a com­pen­sa­tion. Imag­ine instead that we had to put our global cost into a bank account, and each of us got a check once a year to cover the cost of what was in the account, based on the par­tic­u­lar bur­den we all bore from the col­lec­tive pol­lu­tion. Then every­one would pay for the bur­dens they cre­ate, and every­one would be com­pen­sated for the bur­dens they received. The closer we can come to achiev­ing this, the bet­ter we address cost exter­nal­i­ties and more accu­rately reflect the true eco­nomic value of a transaction.

Those exter­nal­i­ties don’t exist solely as costs. They also can be exter­nal ben­e­fits. For instance, imag­ine a sce­nario where there is a major street run­ning through a neigh­bor­hood. It has been cracked and pot­holed, and this has made travel down that street very uncomfortable…not to men­tion dam­ag­ing to the cars that drive on it. The res­i­dents band together to pay to have the street repaved. You don’t live in that neigh­bor­hood, but you pass through it on that road every day as part of your com­mute. You get the exter­nal ben­e­fit of a smooth road, while the res­i­dents bore the cost of paving it.

It turns out that much of the Inter­net behaves in this fash­ion. We directly pay for very lit­tle of the net­work over which our com­mu­ni­ca­tions run. We do, how­ever, gain a great deal of exter­nal ben­e­fit by virtue of oth­ers pay­ing for the bulk of the network.

Typ­i­cally, it makes sense for us to col­lect those exter­nal ben­e­fits in cases where it is too oner­ous to directly charge for each use. In those instances, it makes more sense to aggre­gate the costs and dis­trib­ute the col­lected money for the ben­e­fi­cial ser­vices. This is the pri­mary basis for tax­a­tion. Enough of us want those ben­e­fits that we are will­ing to pay for them in a col­lec­tive fash­ion, so as to reduce the fric­tion that would oth­er­wise arise if we had to indi­vid­u­ally pay for each instance of reap­ing the exter­nal benefit.

But how to tax us? Fairly, of course. But fair tax­a­tion means dif­fer­ent things to dif­fer­ent peo­ple. It can mean the same num­ber of dol­lars per per­son, or the same per­cent­age of income or wealth per per­son, or the same amount of mar­ginal util­ity per per­son. I am a fan of the mar­ginal util­ity model, but I sus­pect that’s because of the amount of time I’ve spent learn­ing about eco­nom­ics. It’s not a con­cept that most peo­ple are able to under­stand with­out a lot of expla­na­tion. Typ­i­cally, those who under­stand it and con­tinue to oppose it sub­scribe to the belief that pay­ing a lower mar­ginal util­ity tax is just reward for the hard work that led to more wealth.

But there’s another way to view tax­a­tion. Taxes pro­duce drag on the econ­omy. Gov­ern­ment spend­ing that is cov­ered by those taxes stim­u­late the econ­omy. But dif­fer­ent taxes pro­duce dif­fer­ent lev­els of drag for the same amount of tax rev­enue, just as dif­fer­ent gov­ern­ment spend­ing stim­u­lates the econ­omy to dif­fer­ent degrees. There­fore, another goal might be to max­i­mize rev­enue per “unit of eco­nomic drag”. That would fund our gov­ern­ment with min­i­mal neg­a­tive impact on the econ­omy. This model ignores any degree of “fair­ness”, but it can make all of us bet­ter off than we would be in any of the ide­ally “fair” mod­els. Would we be hap­pier with more, even if the dis­tri­b­u­tion was less equi­table? Or would we pre­fer a more equi­table dis­tri­b­u­tion, even if it means every one of us is worse off in the end? It’s a good set of ques­tions to ask, but nobody is ask­ing it.

And, much as I wish it weren’t the case, not every­thing can be han­dled with a free mar­ket. Humans are par­tic­u­larly short-​​sighted, espe­cially when they are younger. Monotreme would point out that it’s because of the under­de­vel­oped amyg­dala, but I’m less con­cerned with the why than the what in this case. That short­sight­ed­ness puts us at a social crossroads.

The com­pas­sion­ate side of us doesn’t want us to sub­ject peo­ple to extreme suf­fer­ing, even if it comes from poor deci­sions ear­lier in life. We don’t want old peo­ple to be on the streets, pick­ing their din­ners out of garbage cans until they die of some eas­ily cur­able mal­ady. We don’t want young peo­ple to die after auto­mo­bile acci­dents sim­ply because they don’t have insur­ance to cover the med­ical costs incurred in the accident.

Yet, the per­sonal respon­si­bil­ity side of us (to which I alluded on Sat­ur­day in “Self-​​Doubting Thomas”) makes us want peo­ple to be self-​​sufficient. We want more ants and fewer grasshop­pers. Gen­er­ally speak­ing, a soci­ety of ants will have a more robust econ­omy than a soci­ety of grasshop­pers. To the extent, then, that we shield peo­ple from poor deci­sions, we encour­age more grasshoppers.

How do we, as a soci­ety, address this para­dox? Poorly, to be per­fectly frank. Grasshop­pers tend to col­lect exter­nal ben­e­fits with­out con­tribut­ing to cover the asso­ci­ated costs. But they do so whether they are shielded from their poor deci­sions or left to be sub­ject to them. We could go Jonathan Swift on them, of course. But even the most cal­lous among us seem unwill­ing to go to those extremes. This leaves us with unavoid­able grasshop­per costs. Our options are to focus on the lowest-​​cost ways of deal­ing with them (per­haps a return to the poor­houses of the 19th cen­tury?), or to accept the fis­cal costs of deal­ing with them in a com­pas­sion­ate way. If we choose the lat­ter, we must accept that it will almost cer­tainly increase the num­ber of grasshop­pers. That sim­ply becomes one of the costs of appeal­ing to our sense of compassion.

Nat­u­rally, I lean toward that more com­pas­sion­ate model, in no small part because I rec­og­nize that it is nearly impos­si­ble to sep­a­rate those who choose to be grasshop­pers from those who have grasshop­per­ness thrust upon them (e.g., those who grew up with­out the resources that would have led them to become ants, or had extreme cir­cum­stances that pre­cluded anthood).

This becomes par­tic­u­larly impor­tant when deal­ing with health­care, since it doesn’t fit well into any form of free mar­ket. This is why I noted, so long ago, that “Health Insur­ance Isn’t Really Insur­ance at All”. Health­care is so com­plex, because it deals in so many sub­mar­kets, that we can­not hope to address the costs we have with­out teas­ing the sep­a­rate parts from each other, and address­ing them indi­vid­u­ally, but in a holis­tic fashion.

Ulti­mately, these prin­ci­ples are what led me to align with the Democ­rats. I don’t want social­ism. I don’t want any­thing close to it. But I want to com­pas­sion­ately address our health­care and the social safety net nec­es­sary to sup­port our society’s com­pas­sion for our fel­low humans. I want to achieve the goals of lower crime and bet­ter lives for Amer­i­cans — not just today, but for gen­er­a­tions to come — at the low­est net present cost pos­si­ble. I want to encour­age mar­ket com­pe­ti­tion so as to max­i­mize eco­nomic Dar­win­ism, but do so in a fash­ion that encom­passes the total costs of the trans­ac­tions, so that those engaged in com­merce don’t ben­e­fit by steal­ing from those around them.

While I don’t believe that the entirety of the Demo­c­ra­tic Party Plat­form aligns with those beliefs, far more of it does than does the Repub­li­can Party’s counterpart.

But what I long for most is for these issues to be dis­cussed. We haven’t had many true polit­i­cal debates in the United States in my life­time. It’s too easy to go for the cheap shot, and those who do receive too much ben­e­fit to stop doing it. It was my hope from the start that Log­a­rchism could be a bea­con of light, a place where the issues could be dis­cussed with­out devolv­ing into cheap shots. I think we’ve done bet­ter than most cor­ners of the Inter­net, and I’m proud of that. But I’m also sorry that we haven’t been able to do more.

What does our future look like when we can’t look holis­ti­cally at pol­icy, when we must reduce every­thing to sim­ple solu­tions to com­plex problems…simple solu­tions that we all know (or should know) won’t work? As we approach the 237th anniver­sary of the offi­cial sign­ing of the Dec­la­ra­tion of Inde­pen­dence, I fear for our coun­try. We can­not solve any­thing if we are unwill­ing to con­sider, recon­sider, and rethink that which we already “know”.

That is the real ele­phant in the room.