Friday, January 2, 2009

Producing Public Goods without Taxes

I'm writing this post because the most common objection to my position on taxes (that "taxes" is just a euphemism for "robbery") is that, even if taxes are immoral, they are necessary since there is no other way to pay for so many of the necessary services which government provides.

What is a public good? The technical definition is that it is a good which is non-excludable, which means that you can't charge for its use once the good has been produced.Take a fireworks display. Once you shoot off the fireworks, you cannot charge people to see them because they are up in the air, visible to everyone. If you can't charge anyone, then it obviously won't be profitable to do it, and the market will fail to produce the good.

Before delving into the technicalities of how public goods can be produced without taxation, let me address again why we should want to. There are two major reasons, one ethical, one utilitarian:

1) Taxation is robbery and moral acquiescence to taxation is slavery. 

Taxation is a claim by an individual or oragnization on the property of others. In ancient times, you more likely paid tribute to a foreign power than taxes to a local power... or you were a slave. The claim takes the form of "I/We have the right to ___% of your property because ________. If you do not comply, I/we will seize it by force." It really doesn't matter what goes in the second blank, since no justification can be offered for seizing property by force where no voluntary contractual agreement has been previously made.

But let's say you agree that the government "has the right" to some percentage of your property and you don't consider it stealing - then the question becomes how much do they have a right to? 0% (complete private ownership) and 100% (complete slavery) are natural boundaries, but any point in between is arbitrary. But since the government will always want more taxes over less taxes, it will always want to move the amount of your property it takes closer to 100% and, with the right justification, they may succeed. The top tax bracket during WWII was over 90%! Granting government "the right" to take any taxes at all is an implicit agreement that the government really has the right to 100%, but shows dispensation and self-restraint in taking less. In other words, if the government "has the right" to 1% of my property, it really has the right to all my property but is gracious enought to leave me the 99%.

2) Taxation is socialization. Milton Friedman states in his video series Free to Choose, "No one cares for the property of others as well as he cares for his own." Taxes - in the post-monarchy era - are the property of no one. So, they are not cared for. This is why government programs are so notoriously wasteful. "It's not my money!" Since tax monies are social, they are squandered and this leads to a net impoverishment of society which always hurts the poor the most.

For both the moral reason (taxation is robbery/slavery) and the utilitarian reason (taxation results in an increase of squandered resources), funding goods and services through taxation should be avoided wherever it can be.

Here is a pretty big list of articles treating the privatization of various kinds of goods and services which modern governments currently monopolize. From the same site, here is an eye-opening article by Roderick Long discussing six ways (not an exhaustive list, by any means) that public goods can be privately produced.

Let's start with the easy stuff like roads, bridges and other infrastructure. The only reason these are "public goods" is because we make them such, legally. There is no reason a road should not be privately owned. Once privately owned, the road is no longer a public goods problem since its use can be charged for (it is excludable). The same goes for water works, power lines, phone lines, railroads, etc. etc. There is nothing about these goods which makes them intrinsically non-excludable. It is only their legal status that makes them public goods. So, if you want to eliminate the need to pay for them from tax revenues, simply remove the legal barriers to private ownership of these goods and the market will naturally produce them like any other good or service. The same is also true of fire departments, emergency rooms and other municipal services. The only reason they "cannot" be privately produced is the legal barriers to their private production. Once the legal barriers are removed, the market will naturally produce them like any other in-demand good or service.

Next, we move to the harder problems like national defense, courts, and police services. Many of these problems are truly non-excludable at first brush. How do you defend from military attack only those households who paid for such defense?! Obviously, such fine-grained exclusion is impossible. However, that does not mean the problem is insoluble. David Friedman has suggested a money-back guaranteed bond method by which a region could voluntarily raise defense monies without resort to taxation. The bond works as follows: $X is needed to sign a defense contract to defend the region. Anyone who cares to have their region (and house) defended may purchase a bond towards the $X goal. If the $X goal is not reached after so many days of fund-raising, all bondholders receive their cash back. While free-riders still don't pay, non-free-riders also payno more than the amount at which they value the defense of their home and they do so without risk of losing their money in the event the $X threshold is not reached. This would be not unlike a United Way drive, with which people are quite familiar.

Since the military budget is the #1 expenditure of most governments, and taxes are socialized monies, it is not a large leap to conclude that military "defense" is massively overproduced. Hans Hoppe proposes funding military defense through insurance rather than bond measures, as Friedman proposes. Hoppe's approach is more minimalist (only very valuable properties and investments would have military defense, not homes) but may be more truly reflective of the actual defense needs of the public, since foreign armies typically don't invade in order to ransack people's homes. In the insurance model, large corporations or wealthy owners of valuable property would insure their property against foreign attack. The insurance agencies, in turn, would take on the costs of defense contracting. If a foreign power showed signs of aggressing on a particular region with valuable properties (i.e. a city or industrial region), the insurance company would pay defense contractors to move in and ward off or repel the attack.

These are just two possible solutions to the problem of producing national defense - they could even coexist, with overlap. The important issue is that even something as non-excludable as military defense can be produced without resort to taxation.

Police services are actually much easier to produce on the market because excludability is much more fine-grained. The same approaches of bonds or insurance can be used. Alternatively, homeowner's associations can require payment for community protection on a contractual basis (entirely different from taxes because voluntary). Bundling - which Roderick Long discusses in his above article - is another approach which could work, where security companies use advertising to pay their revenues. The movie Mystery Men depicts this idea, in fact (though in mockery) with private policemen who are superstars with uniforms that look more like racercar drivers instead of traditional police uniforms.

Producing courts and law is a much more complex topic and one that David Friedman has written an entire book on... Law's Order. I recommend that if you're interested in how courts and law can be privately produced that you take a look at his book.

In summary, most services which governments monopolize are only public goods because the law makes them such, not because they are inherently non-excludable. Those few services which are truly non-excludable at first brush can still be produced on the market with the application of ingenuity. And this is not all theoretical, as anarcho-capitalist scholars have delved into historical detail of how these services were privately produced in places like medieval Iceland, the Western United States and elsewhere. In the end, the specific details of how they would be produced on the market doesn't matter to my position that taxes are immoral and destructive. So long as it is possible for these services (courts, police, national defense) to be produced without resort to taxation, then no rationalization for taxation - even from the "greater good" or "necessary evil" position - is possible.

1 comment:

deadmanoncampus said...

Read your blog.Liked it.Here is mine on the evils of taxation!