Short Essay Regarding "Dispute Resolution when Rationalities Conflict: Cost and Choice in a Mixed Economy"

October 24, 2016 • John Vandivier

This short essay was a 2nd year Ph.D. level homework assignment for which I received a B+, where the professor grading my response was also the original article's author.

The original article from Wagner (2011) is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1921929">a working article, accessible here.

Dr. Wagner's comments on this essay included: "I accept pretty much everything you say, save that I don’t pursue normative theorizing nor do I think public goods theories have any informative value."

The paper presents its motivation as one of modernizing the economics of legal disputes on the new occurrence that political agencies are now common members of dispute. The thesis is that conflicting rationalities exist between public and private agencies, leading to societal tectonics which are often mistaken as market failures.

I generally agree with the conclusion of the paper including the idea that government should recede from commercial activity. Instead of criticizing the conclusion with which I agree, I will critique the suppositions and also the intermediate logic used to arrive at such conclusions, and then build them on a way to establish my own, modified conclusion.

My conclusion is that the core issues are concentrated calculation and moral hazard, not the public nature of goods or services provided. As a result, private provision seems to solve most obvious issues in an effective way, rather than trying to reform the political system from within.

The paper will proceed by arguing five points. First, I will argue that the distinction of several modes of rationality is unnecessary. Second, I will argue that there is a key difference between public agency and a public good. Third, I will point out that political systems need not generate societal tectonics in theory. Fourth, I will argue that public leadership in particular is the source of societal tectonics. Lastly, I will argue that external constraint on the public sector is more effective than internal attempts to reform.

First, the author states that there are such things as different rationalities, but this is an unnecessary distinction which turns out to be mostly a semantic difference. The author refers to MacIntyre’s notion of rationality and the assertion that several modes of rationality exist. MacIntyre is not an economist and it turns out that his description of many kinds of rationality is nothing more than a singular kind of Austrian rationality in combination with heterogeneity of goals.

MacIntyre conceives of a rational act as some act which is consistent with some tradition. A tradition is once defined as an argument extended through time which is defined and refined by many people. In another case it is allowed that an individual may be acting consistent with some tradition without any specific awareness of the tradition. MacIntyre’s first conception of a tradition is susceptible to a problem of origin:

All action belongs to a tradition
A tradition is an argument defined and refined by many people
An argument is an action
Therefore, an argument belongs to a prior argument

The conclusion is usually true and largely self-validating. Arguments often beget new arguments, and it is these unbroken chains of argument which we call a tradition of thought. If this is the cases, however, whence come the first tradition, or the first argument? There is an origins problem which indicates that argument cannot be the root cause of tradition.

I would propose that MacIntyre’s other idea of tradition is best. That is the idea where a person may be acting in some tradition without knowing it. I would go on to say that the reason they do not know which tradition they are acting in is precisely because no such tradition yet exists. That is to say that beliefs and goals form primarily, actions next, and only then do arguments arise and later traditions form.

The distinction between beliefs, goals, arguments, and traditions are subtle but important. This understanding of MacIntyre also deflates the concept of multiple rationalities. Instead we see that there is one rationality, the Austrian sort, but there is diversity in beliefs and goals, as well as the traditions which later emerge from those beliefs and goals.

The second critique is on the equivocation between public goods and public interests. The tragedy of the commons is seen as the calculative justification of the failure of the public interest, but this is an equivocation. In practice, very few of the many cases in which the public is involved and which motivate the paper as a means to modernize the discussion, turn out to involve public goods. Under the definition of a public good as one which is non-excludable and non-rival we would grant the story about oysters as a fair enough example, but in reality largest share of cases the public prosecutes are cases involving drug crime, burglary and property crime, or violent crime. These goods are regarded as private goods.

The third critique is to point out the assumption of political failure. I agree that political systems generate results less satisfactory than the market, but this need not be the case in theory, and this paper is written in the scope of theoretical reasoning. In theory there need be no tectonic disturbance at all if the public sector is optimally elected such that they represent the same beliefs, goals, and traditions as the public. Without any delta in such factors there would be no tension and therefore no societal tectonics or conflict. In practice, of course, our system has failed at such an outcome.

It seems to me that the difference in goals is key, because if we emphasize only the ideological differences between typical public and private agents the entire tectonic tension becomes is easy to dismiss. Most Americans fall into the tradition of conservatism, progressivism, or some hybrid. Exceedingly few Americans choose the strong views of pure socialism or pure laissez faire. If they did, the tectonic divide would be obvious even at the individual level.

Instead, any randomly selected public servant does not possess an ideological structure terribly different from a randomly selected private citizen. However, the political system ultimately resolves toward the goals of political leadership, and the tendencies of leadership are barraged by public choice issues rendering their goals noticeably different from both the typical citizen and the typical public servant.

My fifth point is on the conclusion. I do not disagree with the conclusion, which is that the public sector ought to recede from its present role in commercial and faux commercial activity. In fact, I agree with the author perhaps more strongly than he agrees with himself when he notes that there are a variety of analytical grounds for thinking that democratic systems face pressures towards re- feudalization of society.

I also agree with the author earlier in the paper where he points out the effectiveness of private institutions in handling issues of the commons. I would essentially argue that the conclusion was understated, and that the public sector should not only retreat from commercial activity, but that it should retreat from activity altogether. That is, I propose that private institutions can provide for the guardian-type activities of law and order in society not only just as well, but in a vastly superior fashion when compared to the present arrangement.

The private arrangement of law and order is beneficial for at least three and perhaps more reasons. I will mention a total of four reasons, allowing that the last one is only circumstantially valid. First, the perverse structure of concentrated benefits with disbursed costs is eliminated in a market approach to law. Second, the competitive nature of the market will improve the quality of guardianship, reduce the cost of guardianship, and recognize the heterogeneity of demand for guardianship by allowing consumers to select different and innovative bundles of services rather than a one-size-fits-all approach.

Third, a polycentric approach will create a more robust system by removing central points of failure. If one government has a monetary or debt crisis, for example, it would be likely to affect far fewer people and to recover more quickly.

The fourth benefit is plausible but it is also possible it might be a drawback, going in the other direction. That is the possibility of improved foreign relations, trade, and military reform. Ideally, polycentric units of government would experiment with varieties of trade relations and we would expect those with the freest trade to rise to prominence for reasons of productivity. However, it could also be the case that international bodies would refuse to acknowledge these strange new private legal entities as governments with authority to enter into various treaties and so forth.

It’s a similar story regarding military changes. It could be that the birth of new governmental entities allows for a reset of the negative international perception of the US and a reduction in the degree of war. It could also be that dispersion of the military creates losses from scale or a temporary confusion during transition which some foreign powers might try to leverage.

Now I would like to build on the arguments of the paper in light of the above criticisms and see what conclusions we might draw about cost and choice in a mixed economy. First I can use the concept of public interest instead of public goods. I recognize that this is simply total welfare as described in most economic models.

Second I realize that individuals do not fully fall into or out of the public interest. Instead, most people are interested in themselves and also the public to varying degrees. However, most people, whether elected or not, tend to act in their own interest primarily, whether consciously or otherwise. This is like a moral hazard effect. Such an effect is best eradicated by the discipline of the market where concentrated benefit and disbursed cost is not an issue.

Lastly, political failure is identified as a finding rather than an assumption by analyzing comparative performance in either productivity or utility and welfare. Specifically, it seems to be a problem in concentrated calculation where much information is tacit, and also a problem due to calculation on the basis of malformed prices derived from a market system subjected to government intervention.

All of these problems seem to be rectified by allowing the market to produce security and law services rather than a central government. A more difficult question is how we might transition to that state from the present state.