Regime uncertainty

Boyes writes of the government response to the 2008 "crisis"

"Their panic went against the basic foundation of a market system. It created the feeling that private property rights were unsecure; that could be confiscated at any time."

The comparative advantage of the state which arises from the ability to coerce is in the definition and enforcement of property rights. From this function flows stability, order and the ability of the agents in society to use their own knowledge and their own preferences for their own ends. It is this liberty that allows for the discovery of responses to changes in the environment.

Boyes points out that in addition to attacking property rights, the reaction of the government during events in 2008 lead to a feeling of uncertainty which, in many ways, creates a fear that seems to have resulted in a demand for more security through the increased power of the state.

So there is a twin concern illustrated by the government's reaction to events in 2008 - first an increase in both scale and scope of the state in the affairs of its citizens and second, a regime uncertainty that is accelerating.

Higgs makes a point about this second issue that is particularly relevant in the 21st century in the USA:

"pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially though not exclusively, from the character of federal government actions . . ." Regime Uncertainty

While Higgs was discussing the Roosevelt administration during the Great Depression he could well have been addressing Bush, Clinton, Bush Jr. or our present president's administration. Boyes's post reminds us of both the insecurity and uncertainty that results from the recent trial and error approach of Leviathan to expand the scope and scale of the state.

The basis of this expansive governmental power comes from a philosophy that seems to be embraced by both major political parties and certainly politicians of all stripe. In reading a blog post on an Obama appointee the following seems appropriate to this topic:

"You owe your life — and everything else — to the sovereign. The rights of subjects are not natural rights, but merely grants from the sovereign. . . .A new intellectual champion of absolutism has now emerged. Mild-mannered University of Chicago law professor Cass Sunstein has been advancing the radical notion that all rights . . . are grants from the state. In a book co-authored with Stephen Holmes, The Cost of Rights, he argued that "all legal rights are, or aspire to be, welfare rights," that is, positive grants from the state. There is no difference in kind between the right not to be tortured and the right to taxpayer-subsidized dental care." Absolutism Redux

So, there seem to be two processes at work here - first an inflation of rights (dental care as a right?) and second and more concerning, an argument that seems to have found an audience that the state grants these rights, that is rights are a creation of the state. The emergence and metastasis of this second notion explains a great deal of the uncertainty, insecurity and fear that characterized the 2008 period. The "panic" that Boyes describes was induced by agents in the government acting in their own interests.

This idea of public choice as a useful prism to understand government activity was illustrated for me as I read an old Ken Rogoff open letter to Joseph Stiglitz.

Rogoff writes:

" But what really puzzles me is how you could be so sure that you are 100 percent right, . . . Throughout your book,(Globalization and its Discontents) you betray an unrelenting belief in the pervasiveness of market failures, and a staunch conviction that governments can and will make things better. You call us "market fundamentalists." An Open Letter

Rogoff hits it on the head - whatever else Public Choice tells us about the behavior of the actors that make up the state, many if not all of these state actors display the hubris that Rogoff sees in Stiglitz - an overriding sense of correctness, of knowledge, of the right. Whenever I hear or read this assurance on the part of a state representative I am reminded of Hayek. From the Use of Knowledge in Society to The Fatal Conceit Hayek argues convincingly against certainty and knowledge by individual actors. It is through the interaction of partially ignorant actors that allows for an emergent order, an order that has a higher likelihood of liberty than the actions of the sovereign.