Limiting Leviathan

A response to Incentives Matter's response to my response to cdh's question. I think.

Editor’s note: This took forever and a day to write, not just because work has been wrecking me and for the past two months at least one of the tiny humans in my house has been sick on any given day and gotten me sick. No, this was one of those mental rabbit holes where every few paragraphs another fork in the logic crops up, another aspect to address. I was expecting maybe a thousand words at the outside, and, well… I just had to stop before it got to 5,000. I apologize if I gave a short shrift to a point you were interested in. Complain in the comments and I will address it ASAP!

Continuing the conversation between myself, cdh and Incentives Matter¹, the latter has written up a nice essay addressing his thoughts on the demand for government intervention, and what that says for larger or smaller government. IM is a very thoughtful guy and recognizes that, though larger government is often undesirable and a net negative, there are a lot of reasons why people ask for it anyway. He hits a lot of important points, three primary:

1. People want wealth redistribution.

2. People only try to pass laws limiting what other people do that they don’t like. You don’t need laws telling people not to chop off their own toes because people don’t really need telling to not do that, and if they do and everyone wants to do it too you don’t need a law either. In other words, people want the state to coerce people into behaving a certain way, and don’t bother if everyone does it.

3. People want laws to protect them from people they don’t trust in the usual interactions and day to day behavior. If everyone behaves the way everyone expects them to, you don’t need laws to make sure they do so.

All that comes together to make the necessary conditions for small government a very homogeneous polity, possibly with little interaction with the outside world of people who don’t share their culture and behavior².

Now, I think that IM has identified some really important points, ones that I also incorporate into my thinking. Yet his best example of a small state is the standard family unit, and right off the bat I think that starts to show how his example doesn’t quite work. IM describes a family as a state in which “No coercion is required (at least normally) because family members want to help each other out. Rules and regulations need only be minimal because members of a successful family unit share similar values and trust each other implicitly.” I think this is not so.

In my own immediate family’s case, coercion is pretty much the rule. Two autocrats serve as dual consuls for life, directing the lower classes in the day to day execution of their daily lives and duties. All aspects are regulated, from what they eat, what they wear, right down to when they must awaken and go to sleep each day. Speech rights are sharply curtailed, as well as extensive censorship of media. Intercourse with outsiders is strictly controlled. While one might argue that there are very few laws and regulations on the books, this is largely because the law is what my wife says it is, and don’t make dad angry enough to deal with you.

Quite literally, 3/5’s of my family’s population are subjects with extremely limited rights. The amount of control exerted would be considered the height of tyranny and madness if attempted by a state. Yet the kids are happy, healthy, and our family is apparently no more or less oppressive than any other.

It doesn’t work much better at a larger scale extended family. Two extremes tend to obtain: a loosely connected family approaching a group of friends with only very few obligations and rules, or an extremely closely connected family with strict rules and obligations enforced and often dictated by a particular family head. The former extreme seems to approach something of a minimalist government but doesn’t look much like a family, the latter looks like a very powerful government.

F.A. Hayek points to the rather strong command and control nature of the mid 20th century economy, blaming much of the human desire for socialism on a desire to apply to rules that work with a family to the impersonal and much larger scale economy of society. We live in two worlds, the small close knit and basically communist family and the large group of almost total strangers we call transactional society, and trying to apply the rules of one world to the other is bound to fail horribly.

So, if I largely agree with IM’s three key points, why do I disagree with his example of the family³? What else is relevant?

Well, I think there are two axis one needs to consider, or four aspects:

• Rules the state imposes vs things the state does

• Demand for state intervention vs supply of state intervention

While IM does a good job addressing some of the demand side incentives for the state to act, he does not address the limits on a state’s ability to act. I think in many cases the very factors that incentivize action for the state also serve to prevent it from acting.

Relatedly, when talking about big vs small government there is the question of just what we mean by “big government.” Is a highly communal society with all resources allocated by the government but extremely few rules of behavior outside of “all your stuff are belong to us, and we decide who gets what” a big government? What about a theocratic style government with extremely precise rules of behavior that nonetheless controls extremely few resources, engaging in nothing more than behavioral compliance? Is it big government to have strictly imposed law touching on the minutia of life but consumes only 10% of society’s wealth?

Let’s dig into this a little deeper, and then see how these aspects behave with regards to heterogeneous populations.

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Things Governments Do

Governments do a lot of different things⁴. Modern governments in particular do an amazingly broad array of things compared to historical ones; the late 1800's saw a huge expansion of the role of the state. (Thanks, Prussia.)

If I were to break state activities down into two broad categories, I would divide the punitive legislative aspect and the public service aspect. The former aspect focuses on rules requiring or prohibiting action and punishing the failure, the latter aspect on providing goods, services, transfers, etc. There is a little overlap between the two, like whether or not a police department falls under rules or public services, but when thinking about more or less government activity, both are separate enough.

The question is, what constitutes bigger/smaller government in each case?

Rules and Big Government

When it comes to the punitive legislating aspect, the scale goes from “lots of rules and control” to “almost no rules and control.” We can imagine big government as intrusive government, government that gets really involved in the minutia of everyone’s life, while very small government looks something like “Don’t kill each other, or steal each other’s stuff, and pay your taxes” and no more⁵.

Focusing on the bigger end of the scale, there are sort of two classes of rules we might further break things down into: personal behavior and public or economic behaviors. Rules regarding personal behavior are defined as being relevant to everyone, whereas economic behavior rules are only relevant to those who engage in those economic activities.

For example, imagine a small medieval kingdom, Micromanageria. We might imagine the king declaring that wearing red on Wednesday is a hangable offence, that certain days are holy and people are not allowed to exchange money on those days, and that farriers must give any old horse shoes they remove to the horse’s owner.

Now, the wearing red thing, that is a very personal behavior, and everyone is going to need to know that rule if they want to stay out of trouble. Everyone in Micromanageria, whether citizen or foreigner, is going to be at risk of punishment otherwise. Additionally, the enforcement of the rule is going to be very intrusive; are you going to have spot checks on the street to make sure people aren’t wearing red undies? Will neighbors be snitching on each other? The fact the crime is against the state as opposed to a harm done to another individual also makes it more ripe for abuse, but even ignoring that we can see that it is going to be very intrusive to everyone.

On the other hand, the rule about farriers handing over the replaced horse shoes, most everyone in the kingdom can be entirely unaware of that requirement. If you are not a farrier (almost everyone) and don’t own a horse (lots of people) then you can go through life blissfully unaware of the issue. Even if you are just a horse owner, you don’t really need to be aware of the rule to avoid trouble; it isn’t up to you to make sure the farrier obeys the law. This is the hallmark of rules addressing economic behaviors: they only affect a small number of people based on chosen activities, and so even when intrusive and expensive to comply with are largely unknown to the populace at large⁶. Even if the rule has sweeping consequences only a few people are bound by it.

What about the law regarding exchanging money on holy days? On the one hand, this is obviously an economic rule, both because it covers exchange and because not everyone exchanges money everyday. On the other hand, everyone exchanges money, so everyone needs to know of and be aware of the rule thus limiting their behavior. The reason for the rule also makes it a bit more personal, but we can leave that aside for the moment. I would classify this one as a personal scale rule myself, due to the fact everyone is subject to the limitation and finds their behavior constrained.

So a smaller government will have fewer rules overall, and a bigger government will have more rules. Why do the types matter? Because personal rules feel more oppressive, more “big government,” than economic rules, regardless of the distortionary effects on behavior. Since most people don’t know about the economic rules that don’t apply to them directly, they are likely to feel as though there are no such rules in place.

This is why modern people can say “The financial system is entirely unregulated!” with a straight face, despite said industry being so heavily regulated the number of rules is generally described in terms of linear feet of book shelves containing them.

Keep this in mind for later.

“Everything” Is Just Another Service We Provide

When people think “big government,” it is often the public service aspect they are thinking about. Whether it is government provided health care, government provided schools, government provided cell phones, government provided retirement funds, government provided science… whether you call them social services, entitlements, pork barrel spending, the list of possible things the government can get up to goes on and on. In a typical western nation like the USA or Britain, government spending on rule enforcement is dwarfed by goods and services provision.

All of these programs represent transfers of wealth from one group (tax payers) to another (government employees), and then to a third (recipients, who might also be tax payers). Sometimes a fourth is involved (government contractors), but generally the model is the government gets a bunch of money from tax payers, typically through income taxes, that money sloshes around a bit, leaking here and there, then gets spent on government employees and contractors providing some good or service to the public, at minimum in the form of a check.

Note I don’t say beneficiaries above. The reason I don’t is that the people who benefit from a program are as often as not the people the program is designed to help. Or rather, the people who are supposed to be helped on paper don’t have to be the ones benefitting for a program to be popular. For example, many housing projects seem to be a net negative for the people living there, and the residents would be better off getting a housing stipend and finding anywhere else to live. Yet the programs continue, because the people that benefit are primarily those whose paychecks are tied to the program continuing. The real beneficiaries are not those the money is putatively being spent to aid, but rather those whose job it is to spend the money.

Now, what makes all this provision “big government” is twofold. Firstly, the funding for programs comes out of the pockets of tax payers, so every dollar spent by government is a dollar of burden on the citizens⁷. Paying 10% of your income in taxes feels a lot different than paying 60%, and while one might enjoy many of the benefits, one notices the cost of those they do not enjoy. The costs accrue, both in direct taxation and distortions of the market as funds go from productive activities to increasingly lower marginal productivity activities.

The second aspect is more subtle, being a step downstream: the public service aspect feeds into increased levels of punitive legislation aspect. As the government takes on new roles it frequently prevents others from also performing those roles.

Sometimes this is simply the case of crowding out, wherein government provision of, say, public schooling makes provision of private schooling less economically viable. When public school are “free” or, more accurately, already paid for compulsively by the parents, many people are not going to pony up for paying for a different school directly out of pocket. It is hard to compete with “We take your money whether you like it or not, but you can send your kid to the school at no extra charge, if you’d like.”

Other times, the government actively makes competing with its services difficult or outright illegal. Sticking with the schooling example, homeschooling was illegal in many US states for many years, and is still very difficult in some. Private schools typically face regulation forcing them effectively to operate at a scale comparable to public schools to defray the costs. Teachers generally must have certifications from state accredited teaching schools⁸, or licenses from the same.

See also: the US Postal Service.

A subcase of this is using services as a sort of Trojan Horse to pass legislation on personal behavior. The PPACA (Obama Care) and state provided healthcare in general is an example. If you are paying your own medical bills it isn’t anyone’s business what you do, but once the state starts paying for your healthcare suddenly smoking, drinking, dangerous sports, even large sodas are ripe for government intervention on the simple basis that everything you do could cost everyone else money. So again, state provision of a service leads to state control over individual actions through behavioral legislation, in this case particularly onerous personal behavior control.

Whew… ok that got longer than I thought. But now that we have described what government does that is big or small, we can look at demand and supply.

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Demand: Stop Liking What I Don’t Like!

The basis for modern legislation…

When it comes to demand for punitive legislation, I agree with IM: the goal is always to get people to stop doing what you don’t like. This might take the form of violations of commutative justice like murder or stealing, or behaviors like drug use, working on the sabbath or wearing white after Labor Day. A more diverse society is likely to have members with very different ideas about what is proper or acceptable behavior, and thus extra incentive for the majority (or otherwise politically powerful) to try and pass laws to coerce everyone else into behavior that comports with their preferences.

Differences in expectations or perceived faults in e.g. business practices will also stem from diversity, encouraging regulation of such practices. Not simply in how one does business, but also in questions of discrimination and the like.

When it comes to public services, however, the demand moves the other direction. More diversity tends to raise questions of “why are we paying for them?” where "them" is whomever isn’t in the questioner’s group. The root of most social benefits programs, the social safety net as it is often called, is the implication of “us taking care of us.” This is quite compelling for a cohesive, homogeneous group, but falls apart rapidly when those who are not “us” start seemingly taking advantage and getting benefits without contributing, etc. Whether it makes sense or not, the believe that immigrants both take jobs and consume public resources does not make people more inclined to support public provision of goods given increased immigration⁹. Particularly when it comes to wealth redistribution, if the poor are of an ethnic or racial group distinct from the middle and upper classes the notion of "us taking care of us" falls away in favor of blaming worse outcomes on behaviors of that poorer group, claims of being taken advantage of by outsiders, etc.¹⁰

From the demand side then, we can probably expect more diversity of population to drive more interest in legislation controlling behavior, but less interest in government programs, particularly those that focus on redistribution between groups, all else being equal¹¹.

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Supply: Stop Making Me Make You Not Like What I Don’t Like.

Here is where I think Incentives Matter’s discussion breaks down: implicitly he seemingly assumes that demand is what drives growth in government regardless of government agents’ willingness or ability to grow government. The supply of government often moves in the opposite direction of demand, and so needs some attention.

The biggest aspect affected by supply considerations is punitive legislation. Although more diversity might make people want more controls on behavior, that same diversity makes actually enforcing those controls more expensive. Enforcement always carries a cost, and the cost goes up with the number of people you are enforcing your will upon. Although more diversity may make people want more punitive legislation, it also makes governments less willing and able to produce it.

Consider two cases pretty close to home¹²: the early days of the USA, and the modern.

When we think about the Bill of Rights, and the First Amendment in particular, we usually think of the freedom of speech. Freedom of speech is not, however, the primary element of the right occupying the place of primacy. Rather:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Why is a hard prohibition of punitive legislation regarding religious behavior the first thing, the most important thing, of the entire Bill of Rights?

Recall that the Founding was only one hundred and fifty years from the Thirty Years war. The bloodiest war Europe had yet seen was as recent to the founders as the American Civil War is to us, fought between two sects of the same religion. The founders had clear example of what happened when princes attempted to dictate the religion of their subjects when there were two popular religions among the people, and knew well that their young nation contained many more splinter sects, themselves often refugees from religious oppression in Europe.

With a large number of disagreeing religious minorities, with high religious diversity, declaring a state religion was tantamount to declaring war against a large portion of your populace. After the example of the past century any governor had to ask himself if religious legislation was worth it, no matter how many might clamor for it.

Compare that governmental restraint to modern state mandated religion, critical social justice, or simply “Woke”. One might ask how so diverse a polity as the modern USA has come to see so many state institutions and indeed legislation effectively requiring adherence to this new credo. The answer lies in the gap between what the credo purports and what it entails, the difference between the face of “Diversity, Equity and Inclusion”, “Anti-racism” and religious loyalty oaths as a prerequisite for employment, or open discrimination based on sex and race.

Quite simply, when it comes to questions like racism, sexism and inclusiveness, we live in a remarkably homogenous country. Actual racists¹³ are a very tiny percentage of the population; actual sexists likewise. In general, Americans are very keen to not even appear so, and inflict a high social cost on open bigotry. Anti-discrimination legislation is targeting behavior that the large majority oppose anyway. What the legislation does in practice where the destructive aspect lies, but that destructive aspect is snuck in under the Trojan Horse of legislative intentions everyone feels good about.

Because that is the flip side of the coin: more social homogeneity lowers the cost of law enforcement. This is why we see small tribal societies, or tightly knit religious communes, or just monocultures in general, sporting so many detailed laws, often with rather strict penalties: those laws almost never need to be enforced because everyone generally agrees to follow them without being coerced.

When George Bernard Shaw writes "Pardon him, Theodotus: he is a barbarian, and thinks that the customs of his tribe and island are the laws of nature." in Caesar and Cleopatra the point is not just about a nabob ignorant that others do things differently, but also that those mere customs carry great penalties for violation. Modern society might gossip and shame you for wearing white after Labor Day; the island tribe puts your head on a pike.

When it comes to the supply of social services with increasing diversity, the issue becomes less clear.

In some sense it becomes more costly to provide social services when cultural norms around acceptable use are more varied. A small homogeneous country like Sweden can afford very generous state benefits when the social norm is to make only minimal use of said benefits; when that norm breaks down, suddenly things get very expensive. The US experience was somewhat similar, with advertisement being used in the early days of federal benefits programs to actively reduce the stigma attached to “being on the dole.” This makes sense from a socio-economic view: the benefits of state aid must be weighed against the costs of social stigma from asking for it, so if the costs are high fewer people will take advantage of programs for which they are entitled.

What makes those norms break down? Well, as I mentioned, one cause is the state actively seeking to break them down through propaganda of a sort (notice how they are called “entitlement programs” ?) Another is increasing cultural diversity. A homogeneous society can rely on norms to sort of fill in the necessary gaps in the wording of legislation to avoid the problems, but a heterogeneous society must fall back on the letter of the law, and thus suffer more costs of service provision.

Note, this is not a swipe at cultural diversity, it is merely to point out that for the most part the law only exists inside people’s heads. Almost no one knows the actual text of the legislation governing their lives, but instead follow some ingrained sense of law amalgamated from experience, anecdote and television shows. It is good to be reminded that “the rules don’t actually say that” from time to time.

Of course, whether or not more costly social programs are something government officials, elected or otherwise, wish to avoid is an open question. In the case of Sweden changing norms about government benefits caused them to shift towards more means based programs as a cost cutting measure. In the case of the US the plan seems to be to borrow and spend as much as possible, all while taking a slice, until the wheels fall off.

I am also less sure of the regulatory side of things when it comes to diversity. In some sense most large economies are incredibly diverse in the eyes of the regulator, as there are hundreds of industries. That makes favoring some industries harder as others will complain of the special treatment, but then again it makes disfavoring any particular industry easier because it is a tiny minority. Or does the revenue of the industry matter most, with wealthier industries being able to buy protection from regulation, or regulation for protection? I really don’t know. It might even have to do with the absolute size of the governed nation, as a larger economy can, and sometimes must, put up with a lot more distortion and inefficiency than a smaller one before all the productive people simply leave the polity.

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Where Does That Leave Us?

I don’t know, but I have a guess.

It seems to me that on whole, all else being equal:

• More diversity leads to more demand for punitive legislation over behavior, but less supply, and supply tends to dominate. This tends towards smaller government with more diversity, but the regulatory side might dominate the personal side and go the other direction.

• More diversity leads to less demand for social services sometimes, and it could go either way on supply. Possibly smaller government with more diversity (although it might feel bigger.)

• Possibly the size of the polity makes supplying everything easier, either through ready cash or ability to hide what you are doing. This drives towards larger government.

Look, with social sciences, sometimes it is this way, and sometimes it is this other way. I feel pretty confident about the effects of diversity on punitive legislation, but much less so on the overall effects on social services. I also haven’t even touched on endogenous changes in the demand for diversity vs homogeneity this might produce!

What this means for bigger or smaller government, well, I expect it means more diverse polities have fewer personal level laws, but more regulatory type laws, and a mishmash of social services that might be more or less than another, although I would guess slightly more on a purely dollar level. Whether this feels like more or less oppressive government depends a lot on whether the personal side of punitive legislation shrinks faster than the growth of spending programs and constraining regulatory issues. I can’t really answer that one.

If you want more personal level freedom and want to live around other humans, I would recommend considering the large diverse metropolitan city as opposed to the more isolated island monoculture, however.

Thanks for reading this far, and thanks to cdh and Incentives Matter for a great discussion!

1. Hereafter IM. Also he, but it occurs to me I am guessing entirely based on the rarity of women who are both pro-small government and teach economics; I probably know 60% of them personally. Of course I am also assuming he isn’t a dog, which, as we know, is not something you can assume on the internet!

2. That last bit is my addition, on the assumption that even a homogeneous polity might have foreigners coming to visit and would need laws to punish them for doing all that stuff locals would never dream of doing.

3. Beyond just empirics, I mean.

4. [Citation needed]

5. And I am not so sure about the taxes part.

6. Of course there is the question of what makes someone a farrier. Do they need a license? If a guy changes his own horses’ shoes himself, but his neighbor asks him to shoe his horse, does that make him a farrier all of the sudden? Definitional problems are the bane of rule makers everywhere and always.

7. Well… actually estimates are somewhere between 1.31$ and 1.60$ of tax payer money for every dollar spent by the government. Those estimates typically include cost of collection and cost of compliance which are very difficult to nail down, hence the range, but I haven’t come across one that was less than about a buck thirty cost for every nominal dollar spent.

8. It seems Florida recently did away with this requirement; it will be interesting to see if that becomes common elsewhere.

9. Whether or not immigrants do take jobs from natives, or contribute on net more or less than the average native is an empirical point I am not able to address. How immigrants might view use of public services is something I am pretty well able to address, and might do so in the future if there is interest.

10. Again, not talking the accuracy or truth of these arguments one way or the other, just saying that they get made.

11. Nothing else is ever equal.

12. To me and most of my readers… not so much to IM and folks on his side of the pond. Sorry.

13. Other than those who are serious about “anti-racism”.