Security vs. Liberty: A transaction cost view
Posted by aogTuesday, 31 August 2004 at 20:23 TrackBack Ping URL

It occurred to me that one of the aspects of the security vs. liberty debate is that security in many ways reduces the transaction costs of citizens. One thing that’s a failing of both libertarians and liberals is a neglect of how complex and daunting negotiating a thicket of almost identical options with limited information can be for most people. We may be amused by refugees from Communist nations who are overwhelmed by the choices of bread in a supermarket, but fail to note that this is a feeling that’s not so uncommon among citizens in the USA as well. It’s also frequently with regard to things far more signficant that which particular brand of bread one purchases.

As liberty expands, citizens are required to spend more and more of their time weighing options for their various choices. Even beyond just security, it is likely to be very attractive to accept a less than optimal result in exchange for not having to choose as long as the mandated choice isn’t too bad.

Libertarians mock liberals whose solution to any welfare program problem is to create additional forms for those struggling on welfare to fill out. Certainly this deserves mocking. But don’t we liberatarians have the same problem when we ramble on about privatizing social security, open employment rules, deregulation in all of its guises? I haven’t seen much consideration of the burden this places on those who don’t enjoy pouring over endless sets of rules and devising optimizing strategies (honest - not everyone likes that!).

I believe that there are solutions to this problem, even though it’s in some sense a variant of the free rider problem (i.e., the majority will simply duplicate the choices of the dedicated rules lawyers). The goal must be to find a way to allow most citizens to make easy, acceptable choices while permitting those with the appropriate mindset to explore more complex options. But we won’t get there if we ignore the fact that most people aren’t rattling the bars of their societal cages, desperately seeking more choice.

Comments — Formatting by Textile
pj Tuesday, 31 August 2004 at 21:47

It’s a good point … cooperation is costly, and freedom (with power distributed to the people) means you need more cooperation than if some dictator just coerces everyone.

However, to figure out what’s optimal, you have to balance cost against the value of benefits that flow from cooperation. Any particular level of value comes more cheaply from cooperation in a free society than from dictatorship (so unfreedom is always Pareto inferior). In practice, the dictatorships always end up at an equilibrium of low benefits in exchange for low costs (nobody has to put out much effort), while free societies end up at an equilibrium with much higher quality benefits, but require enough effort to stress some people.

What you’re getting toward is a mixed-state solution in which welfare or some such allows people who value laziness to live that way - sort of a dictatorial, low-benefits, low-cost option within a free society. Some such mix might satisfy people’s preferences better than either pure freedom or pure dictatorship. But is this two-society plan stable? And is it good? Maybe it’s selfish and lazy to want to avoid work and stressful choices, and people should be pressured to endure living in freedom.

Dave Sheridan Wednesday, 01 September 2004 at 02:51

Actually, there are several big issues here. Pretty clearly a lot of the rationale offered for reducing liberty for all is to not disadvantage those who cannot or are unlikely to make “wise” choices. We hear it now with opponents to school vouchers, and in proposals for socialized medicine.

Social security privatization is equally thorny. Here there are some structural ways to provide a self-funding safety net, but it will involve a collective cost. I often have people ask me to evaluate retirement investment options that are currently available, some of which are confusing for the lay person unwilling to invest in some self-education. They are, though, perfectly appropriate investment vehicles for certain investors. Should they not be offered, just because they are hard for some people to understand?

Where hard libertarianism falls apart for me is in areas where it’s clearly at odds with some minimum standards Western societies have (and I think rightly) set for themselves. We will not let people freeze or starve, even if their condition was the result of free choice. We will see that their children are educated. If we take some minimal level of societal protection as a given, then the question is how to minimize the costs both in terms of welfare and freedom. I think libertarian principles are useful litmus tests to the extent they recognize certain collective decisions that absolutists probably view as irrational.

Annoying Old Guy Wednesday, 01 September 2004 at 12:25

Let me say that I’d love to live in a minarchist society. One question is whether that’s politically feasible. Another is how to get there from here. Hanging out with OJ has sensitized me to the issues of utopianism and political feasibility.


I certainly agree that the results of “dictatorship” will be Pareto inferior. I don’t think that addresses my point, however, which is that much of the citizenry has values other than pure economic effeciency and that failure to address those values will render a libertarian political program moot because it will never be enacted.

It’s not cost nor benefit, but the cost / benefit ratio. Where does the Law of Diminishing Returns kick in for the voters? What can be done to move that point further towards liberty?

Annoying Old Guy Wednesday, 01 September 2004 at 12:30

Mr. Sheridan;

You hit a key point — how can we provide “manual overrides” for those who want them without imposing a politically unacceptable burden on the majority of the citizenry or exacerbating the free rider problem?

My struggle here is not with theory but the messy political reality of the USA at the start of the 21st Century. I want those options but my fellow citizenry aren’t going to permit them if it’s too much work for everybody else.

Annoying Old Guy Wednesday, 01 September 2004 at 13:46

OJ hits a related theme again.

oj Wednesday, 01 September 2004 at 14:01


This seems related:

Suggesting folks don’t need or want as many choices as libertarians propose they be forced to make

End of Discussion