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Trevor Stone's Journal
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Unresearched Economics Thoughts 
27th-Sep-2007 12:55 am
Om Chomsky
Seven people tried to buy drugs from me at the show tonight, but I found that The Chemical Brothers got my mind to wander with no more chemical aid than an $8 (WTF?) beer. While I danced next to the sound boards (where the music sounds best and nobody's in danger of being hit by my right arm), my mind wandered around in the field of economics.

I heard last week that Milton Freedman thought the only valid functions of government is contract enforcement and military defense from external attack. Freedman's economics are (unless he's way more into psychology than he's portrayed) based on rational agents with perfect information. I haven't read Freedman, so I don't know if I'm missing nuances, but given informed rational agents, these seem like an indefensible pair.

If a rational agent has perfect information, he knows how often and in what circumstances everyone broke previous contracts. Assuming past observations are a good way to predict the future (a non-rational belief), one can then determine the probability a contract under consideration will be broken and use that probability to weight the expected utility. It's therefore usually in the interest of a rational agent to abide by contracts and only violate them if the expected utility of the violation outweighs the loss in expected utility from a lack of trust in future encounters.

Put more simply, why leave to government what can be solved by rumor and social stigma?

And if Kant's right, rational agents will never violate a contract, so we don't need to worry about it.

The problem with allowing military defense as the second function of government isn't that it's a bad thing for government to do, but rather that military defense shouldn't be alone in government-supported defenses.

From a functional standpoint, the only difference between a bomber or terrorist blowing up a building and an earthquake blowing up a building is that you can't retaliate against an earthquake. The only difference between an enemy poisoning a drinking supply and a dead animal poisoning a drinking supply is there's nobody to blame. If it's valid for the government to work to defend the populace from a bunch of invading humans, why shouldn't it also work to protect the populace from a bunch of invading microbes or tectonic plates?

Put more simply, public health and fire departments are social goods just as much as national sovereignty. Why would I pay protection money to a fire department when I can build my house next to someone who has an incentive for a fire in my house to not spread to his?

The success of modern economics is due in large part to applying evolutionary thinking to market participation. So why don't economists take the view that governments (which every society of significant size has developed) are adaptations, not flaws?
Comments 
27th-Sep-2007 07:21 am (UTC)
Milton Freedman is a total nutjob. Proof? The man believed in rational agents with perfect information!

The function of government is civilization. That includes military defense and contract enforcement, plus a hell of a lot of other things. Civilization is not automatic, easy, or free. When people argue against various elements of the infrastructure necessary to keep it running, I start to think they need to be watched carefully...
27th-Sep-2007 03:48 pm (UTC)
Milton Freedman is a total nutjob. Proof? The man believed in rational agents with perfect information!

Yes, but I'm willing to humor him in order to counter him on his own terms.
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