Unfortunately, they are much more detrimental tosociety than those facing the secure stationary bandit, oftenalso worse than those that face the gang with a protectionracket, and not much better for society than those facing theindividual criminal.
This is a striking result: special interests are, in a sense, worse than totally selfish autocrats.
Then it will pay this organized interest to press for both gov-ernmental and cartelistic redistributions to itself up to thepoint where the social losses are 100 times as great as theamount it obtains! Only then will its marginal share of thesesocial losses be as great as its gain at the margin from furtherredistribution. Thus, the typical special-interest group has avery narrow rather than an encompassing interest. It faces in-centives that are by no means as wholesome as those facingmajorities.
Very important illustration of why special interests are bad.
Knowledge about the public’s business is a publicgood, and the same collective action logic applies to the studyof the public’s business as applies to other public goods.
Hey, this is Caplan's thesis!
democracy could emerge au-tonomously.
I should read chapter 2. It will probably cover exactly what could make a good blogpost: how democracy could emerge from stationary banditry.
In spite of the vast literature on social contracts—and thegains a society would have if such contracts were made andimplemented—no one has ever found a large society that ob-tained a peaceful order or other public goods through aCoaseian bargain among the individuals in the society. Thereis no case in the historical record that I can find where anysubstantial population has, through voluntary collective ac-tion of any kind, established a peaceful order
This is why Olson doesn't favor the Coaseian explanation for the origin of the government.
The economically most successful autocrats not only tend tohave long planning horizons but also to resist or repressspecial-interest groups: they tend to have “hard” states thatdo not usually adapt their policies to organized interests inparticular occupations or industries. Though a complete ac-count of experience in any country would require takingaccount of the many important considerations that are leftout of the theory offered here, the overall pattern is very muchin accord with the theory.
"The problem with Putin is that he's not secure enough."
Even if many individuals in a large group worked out anarrangement to provide some of the collective good, these in-dividuals would not gain as much as free riders in the group.
The prisoner's dilemma of large-scale cooperation
When we have a correct understanding of both the Coasetheorem and the Prisoner’s Dilemma, we will have added con-siderable explanatory power to the theory offered in this book.
My guess for why a group doesn't bring about the Coaseian bargain: defecting is rational.
We must see why small groups such as hunter-gatherer bandsnormally work out what are, in effect, social contracts thatprovide a peaceful order and other public goods within theband, and why no substantial population has ever worked outa voluntary Coaseian bargain.
A summary of this chapter: in Hobbesian anarchy, the Coaseian outcome is forming a government that can enforce contracts. This is almost always a Pareto improvement since it increases production by so much. However, "so substantial population has ever worked out a voluntary Coaseian bargain". I am guessing because there almost never is incentive for an individual or a group of individuals to bring this about?
When two countries fight acostly war, there must exist a sharing of the savings from notfighting the war that would have left both of them better off;they would, for example, be better off abiding by an agreementpower and prosperity
This is a very convincing example of a quite obvious point: while political bargaining can introduce some grease into transactions, and bring transaction costs down, there is no guarantee it totally eliminates transaction costs.
Consider an example of an interaction that affects three parties. Two of the parties have low enough transaction costs and come together to sort out an agreement. But transaction costs are too high for the third party, and the truly Pareto optimal distribution is never attained because the third party doesn't bargain.
Some of those who put forward this view previously were ofan antigovernmental laissez-faire persuasion, and they have,with commendable intellectual honesty, followed the logic oftheir analysis of mutually advantageous transactions in thepolitical system and arrived at a most favorable assessment ofthe efficiency of whatever governmental policies are chosen.
This is cool.
Thus, we arereminded, for example, that there cannot be only stationarybandits but perhaps also benevolent despots.
May we need to invoke the "benevolent despots" explanation for Lee Kuan Yew, Park Chung Hee, and Seretse Khama?
Here is Claude's list of the 10 greatest statesmen since 1900:
In reality, some interests have no reason to be concernedabout the long run. For very narrow interests, this makes nodifference: they take little or no account of the interests of so-ciety whether they are thinking of the long run or the shortrun. But for encompassing interests, it makes a great deal ofdifference
Summary of this chapter: even purely self-interested stationary bandits are incentivized to tax less than 100% and invest more than 0% of the revenue into public goods (though they could keep it all for themselves). This is because they have what Olson calls an encompassing interest in the public's welfare: it's the public they tax. This is true even of democracies: at some point, the majority would lose so much from deadweight losses on market transactions that further taxing the minority isn't worth it. In fact, this could look like complete benevolence on the part of the majority if any redistribution of income from the minority to itself increases deadweight loss by comparatively too much.
it follows that there are superencompassing intereststhat do not comprise all of society (and thus have a minoritythat they could exploit) that would lose from redistributingincome from the minority to themselves
This is actually a trivial result when you factor in all the hedging. The condition under which this situation obtains is the deadweight losses in market transactions being greater than the tax collected.
Readers who want formal proof of this proposition andvarious collateral results can find them in the previously citedarticle on “The Economics of Autocracy and Majority Rule.”
Need to read this for an actually coherent explanation of the case in a democracy.
The model of autocracy that has just been set out shows thata secure autocrat’s encompassing interest in the societymakes him limit the extent of his tax theft.
I think this still leaves open the question: why didn't the autocrats run the tiger economies to the ground? This model is also incredibly similar to The Dictator's Handbook.
One of the reasons why Singaporean and South Korea did not go the way of Russia, Bourbon France, and Habsburg Spain, is that those economies just didn't have enough resources. They didn't have the "resource curse". Therefore, the only way out was up: they had to build the economy. But I don't think this is a sufficiently compelling explanation, because these autocrats could still have extracted far more than they did.
Take Park Chung-hee in South Korea. While he did enrich his family, it was nowhere near the level of Obiang in Equatorial Guinea or Marcos in the Philippines. The Singapore leadership under Lee Kuan Yew paid themselves high official salaries but didn't engage in massive personal appropriation of state resources. This restraint wasn't obviously necessary for regime survival.
I think a large part of the explanation is that the tiger economies simply lucked out with their founding fathers, much as India lucked out with an excellent first cabinet (Nehru for prime minister, Patel for state-builder, Ambedkar for the constitution writer). Lee Kuan Yew's speeches and writings show a man genuinely obsessed with the intellectual and practical challenge of transforming a resource-poor island into a first-world country. I know less about Park, but he seemed to have admired the Meiji transformation and have seen national development as a personal calling.
The book calls German and Soviet expansionism consumption spending by their respective autocrats, Hilter and Stalin. The tiger economies' sound economic policy was consumption in the same way for their leaders. The tiger economies were passion projects.
I think this is not such an absurd claim to make: there are strong selection effects at work here. The autocrats of the tiger economies were a self-selected lot. What fool, but a highly competent and patriotic one, would take on the task of steering a breakaway Malaysian island? Compare this to a resource-rich country like Russia, where riches are guaranteed if you can claw your way to the top.
Another example of a highly competent statesman is Seretse Khama, the first president of Botsawana. He was especially unusual in that he overcame the resource curse of Botswana's diamonds. According to his Wikipedia, he enforced strong measures against corruption, promised mining companies low taxes and encouraged them to explore more mines, resisted calls to "indigenize" the bureaucracy and kept the foreign expatriates who staffed it, drew on international advisors and consultants, invested in education and healthcare, spent shockingly little on defense, and even negotiated the end of the Rhodesian civil war and the independence of Zimbabwe as a little side project before his death. Between 1960 and 1980, Botswana had the fastest-growing economy in the world.
How do you explain Khama? A stationary bandit whose optimal exploitation rate happened to spur outstanding outcomes? Or a bandit who drew the Laffer curve wrong? Maybe the Occam's razor explanation is the correct one: Botswana lucked out.
The Roman Empire was taxed until it was de-stroyed.
Dude solved the fall of the Roman Empire.
It took ahuge part of the national incomes of Germany and the SovietUnion to satisfy the tastes of Hitler and Stalin.
It's an interesting choice to model German and Soviet expansionism as consumption spending by their autocrats.
Since the settled bandit’s victimsare for him a source of tax payments, he prohibits the murder ormaiming of his subjects. Because stealing by his subjects, andthe theft-averting behavior that it generates, reduces total in-come, the bandit does not allow theft by anyone but himself. Heserves his interests by spending some of the resources that hecontrols to deter crime among his subjects and to provide otherpublic goods. A bandit leader with sufficient strength to controland hold a territory has an incentive to settle down, to wear acrown, and to become a public good– providing autocrat.power and prosperity
This is a good summary of all that Olson has said so far in 10 pages.
The second way in which the encompassing interest of thestationary bandit changes his incentives is that it gives himan incentive to provide public goods that benefit his domainand those from whom his tax theft is taken. Paradoxically, heprovides these public goods with money that he fully controlsand could spend entirely on himself.
This sounds like a cool observation but is too fucking obvious. I feel I have wasted my time reading 9 pages.
If business in this domain is made unprofitable by theft, ormigration away from the neighborhood is prompted by crime,then the neighborhood will not generate as much income andthere will not be as much to steal. Indeed, the Mafia familywith a true and continuing monopoly on crime in a neighbor-hood will not commit any robberies at all.
This is the Mancur Olson idea of bandits being tolerable if they stay in one place.
Some of these economists go on to extend the Coase theo-rem—the idea that, unless transaction costs are too great, in-dividuals have an incentive to bargain until they havemaximized their joint gains—to government and politics
If I write a blogpost, it will be good to bring in Steven Landsburg's excellent explanation of Coase theorem in The Armchair Economist