This post is adapted from something I wrote in an email exchange with Jeffrey Friedman.

Consider two questions we can ask someone about policy knowledge.

1. Does an ordinary citizen know enough about policy area X so that you can say that things would be much better if an ordinary citizen were in charge of X?

2. Do experts know enough about policy area X so that you can say that things would be much better if they were in charge of X?

There are four possible answers: yes to both; no to both; yes to 1 but no to 2; no to 1 but yes to 2.

Yes to both is the progressive reformer quadrant. The claim is that we all know how to fix policy, but we have to overcome evil people by reforming the system.

Yes to 1 and no to 2 is the populist quadrant. Think of Trump supporters and policy area X is immigration. Or Bernie Sanders supporters who don’t believe the technocrats who say that we can’t afford free health care and free college for all.

Yes to 2 and no to 1 is the technocracy quadrant. You will find most mainstream economists here.

No to both is the skeptical quadrant. One example of a policy area in which many people can at least relate to the skeptical quadrant is “bringing peace between Israelis and Arabs.”

One thing to note is that you do not have to be in the same quadrant on every policy area. I am in the skeptical quadrant when it comes to most areas of economic policy, particularly macroeconomic management. Jeffrey and I are in the same quadrant, and perhaps not surprisingly we both champion exit over voice.

However, for me there are some exceptions. For example, I am relatively populist when it comes to breaking up the largest banks. I am in the technocracy quadrant when it comes to military operations or urban sanitation. I am not much in the progressive reformer quadrant. Perhaps the area where I come closest is housing finance policy. I see American housing finance policy as dominated by a conspiracy of interest groups, and I could see us being better off if policy were controlled by politically independent technocrats or even by ordinary citizens.

One way to look at the issue of markets vs. government is to compare the relative strengths of entrepreneurs operating in the market with that of entrepreneurs operating through government. I think that this issue can be addressed along several dimensions:

1. Ability to resolve Coasian bargaining problems

Consider an entrepreneur wishing to solve an urban transportation problem. If the solution involves reconfiguring a lot of land, by building a new highway or rail system, then a market entrepreneur is likely to face a huge Coasian bargaining problem in trying to get all affected parties to come to terms that allow the project to be built. A policy entrepreneur, backed by the coercive power of government, can implement the solution by fiat.

2. Knowledge

I think that a lot of pro-government, anti-market bias comes from implicitly assuming that the policy entrepreneur knows everything about a problem. This is a troublesome implicit assumption, for a number of reasons. First, some problems are simply too complex to be fully understood. In James Manzi’s terminology, causal density is just too high. You cannot isolate the causes of phenomena, and so you cannot reliably predict the consequences of new actions.

Once we accept that knowledge is going to be imperfect, then the issue becomes comparing what a market entrepreneur is likely to know with what a policy entrepreneur is likely to know. As Hayek pointed out, the market entrepreneur works within a price system that coordinates local knowledge. In contrast, the policy entrepreneur relies on centralized knowledge. For opening, operating, and closing restaurants, local knowledge is likely to be more robust. For regulating nuclear power, centralized knowledge probably is more reliable.

3. Incentive to innovate

Large organizations are not well suited to innovation. The problem is that for an individual operating within a large organization, the risks and the rewards are both too small. If your project does really well, you get at most a trivial personal reward. If it costs a lot of money and flops, you personally suffer very little. The type of project that is optimal for a middle manager to launch is one that has a high probability of a small upside, even if it has a nearly unlimited downside. To prevent such projects from being launched, organizations set up procedures that make it difficult to undertake new projects.

(Note that a typical venture capitalist prefers a project with a nearly unlimited upside even if it has a high probability of a small downside. And self-funded entrepreneurs prefer projects where both the probability and magnitude of the potential upside are high enough to offset the downside risks.)

4. Incentive to evolve

Government has no reliable mechanism for discarding bad programs. The market has the profit-and-loss system. Thus, the market is better suited to evolution.

To me, the evolution issue is particularly important. Only a policy entrepreneur could undertake the DC Metro subway system. But once that works out badly, it does not fall by the wayside as would a market entrepreneur’s failed project.

Two recent discussions.

1. David Harsanyi wrote,

by weeding out millions of irresponsible voters who can’t be bothered to learn the rudimentary workings of the Constitution, or their preferred candidate’s proposals or even their history, we may be able to mitigate the recklessness of the electorate.

2. John Cochrane wrote,

Like most economists, I was a bit baffled by the Administration’s announcement of stricter overtime rules. The Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.”>WSJ, and Jonathan Hartley and many others cover the obvious consequences on jobs, business formation and destruction, and so forth. A bit less mentioned, it reduces employee flexibility. If you like working more hours one week and less the next — perhaps you have child or parent care responsibilities — you’re going to be stuck working an 8 hour day. It’s part of the general regulated ossification of American employment. Or, it could be one more inducement to substitute machines for people or make people independent contractors.

As far as I know, the economically ignorant rules that Cochrane complains about were not demanded by the economically ignorant voters that Harsanyi complains about. So I think that the problem of ignorance is more complex than Harsanyi implies. Perhaps the elites are a bit less ignorant than the masses. Perhaps if the ignorant masses did not vote, elites would lean toward better better policies. Perhaps, but I doubt it.

My own view is that at the very highest academic levels, economics is a mess. At elite colleges, inane “sustainability initiatives” are launched without a peep of protest from the economics department. Macroeconomists still fill the air with the mumbo-jumbo of aggregate demand. There is much talk of market failure and hardly any talk of market self-repair or political failure.

I am most troubled by the bad intellectual habits of economists and other academics. My hope is that the ideas in my forthcoming book will eventually be re-discovered. Although hardly anyone is going to read the book, other authors with similar ideas may at some point prove successful. Restore sanity in the academy, and then see if the ignorance of the general public is still a large concern.

I missed this story back in November.

Between 1989 and 2010, U.S. attorneys seized an estimated $12.6 billion in asset forfeiture cases. The growth rate during that time averaged +19.4% annually. In 2010 alone, the value of assets seized grew by +52.8% from 2009 and was six times greater than the total for 1989. Then by 2014, that number had ballooned to roughly $4.5 billion for the year, making this 35% of the entire number of assets collected from 1989 to 2010 in a single year. According to the FBI, the total amount of goods stolen by criminals in 2014 burglary offenses suffered an estimated $3.9 billion in property losses. This means that the police are now taking more assets than the criminals.

It was picked up by the WaPo wonkblog and more recently by the AEI blog, where I finally saw it.

My general outlook on libertarianism is that on a case-by-case basis, I generally agree with libertarian inclinations. However, I try to push back as much as I reasonably can against the unrelenting anti-government line taken by hard-core libertarians.

But the data point quoted above fits awfully well with the hard-core libertarian narrative, which is to model government as a gangster organization. In addition, I would point out that the asset-seizure is really penny-ante stuff compared with the “settlements” that attorneys general and regulatory agencies reach with corporations that they shake down. (Oh, and speaking of shakedowns, there is this). And, of course, even those are penny-ante stuff compared with tax collections, so if you think that taxation equals theft. . .

I like to use the “bake sale” thought experiment. You may have seen the bumper sticker that says “it will be a great day when the Pentagon has to hold a bake sale to fund a bomber.” In fact, I think it will be a great day when all government agencies have to rely entirely on voluntary contributions. That would make each government agency just another form of non-profit organization. So go ahead and make the Pentagon fund itself with bake sales–but do the same thing with the Department of Energy, the Department of Education, the EPA, etc. My guess is that if government agencies had to compete for funds with other non-profits, the agencies would learn to be a lot more effective and a lot more customer-oriented.

Going back to Handle’s comment on problems for libertarian thought, he writes,

obsession with explicit state / government action and insouciant attitude regarding social pressures, when, in the modern era, the latter may have emerged as an even worse threat to the exercise of traditional liberties.

The ‘local freedom to coerce’ problem. If we are trying to increase welfare by giving people what they desire, we have to recognize that one of the things people desire is ‘a community’ and for their communities to have particular characters and sets of norms. There are certain forms of social experience or community life which are impossible to coordinate if the overall enterprise is deprived of some of the core, and at least mildly coercive, attributes of sovereignty.

On the first point, John Stuart Mill also worried about social pressure as a restriction on liberty. And on the second point, Barry Goldwater and Milton Friedman (at least if I remember correctly the relevant passages in Capitalism and Freedom) were against Federal intervention to protect African-Americans from segregation, even segregation imposed by state and local governments.

So these are longstanding problems for libertarians. My own position is that the best way to deal with social opprobrium or discrimination is to give the people who are hurt by those phenomena as much opportunity to exit as possible. I think that once you construe it as a problem that government must solve (by passing Civil Rights laws or regulating organizations) the overall consequences are likely to be worse than letting the problem be resolved through exit.

I hasten to add that exit is not a solution to every problem. Cities, in particular, are bundles of externalities. For any individual, some of these externalities are positive, and some of them are negative. If the positive externalities are strong enough, you will stay in a city and put up with major negative externalities. In theory, using government to get rid of those negative externalities would be an improvement. In practice, I have to say that it is the local government that is the negative externality where I live. That is, if you ask me what would motivate me to move, the first thing that comes to mind is the local government, which increasingly is going to collect taxes to pay for union pensions, not to provide actual services.