HSR: Joe Biden Channels The Simpsons

Our discussion this month emphasizes, I think, the perspective that institutions matter. Institutions generate the incentive system that influences individuals in society in fairly predictable ways.

The public sector as a non for profit organization embeds a set of rules and values that incentives behavior that, in general, will lead to outcomes that do not meet criteria of efficiency. The tops down, statist process for decision making leads individuals within a state institution to act in predictable ways. I am thinking now of Milton Friedman's observation on the ways to allocation resources (spend money).



The clickable chart below shows the combinations of these options. The key insight, for me, is the role played by incentives.

If I believe I can do good for society, I might well overlook or be blinded to the moral implications of imposing my individual plan or view on others. So, by taking an active role in the state, so this train of thinking goes, I can accomplish an increase in societal welfare. Clearly an institutional analysis would highlight the costs of this type of approach and, for most activities, the costs of state action lead to consequences that outweigh any present or future benefits.

And . . . if one finds a path dependent view of emergent evolution convincing, once agents in society begin to go down the path of using someone else's money to "help" someone else the path becomes self reinforcing.

Can this evolutionary path change? Well, clearly Boyes and I are hopeful, otherwise why would we engage in what I hope is a civil discourse on our blog.

But it behoves those who are argue for liberty and responsibility to try to understand the beliefs and faith that support the path of statism. This informal institutions are far more powerful than are the formal rules of the game.

I have used this illustration on this blog before. 2 years ago on my campus a debate was hosted by the philosophy department - Is Wal Mart Exploitative? (Don't you love the framing of the topic?) The debate between a philosophy faculty and business faculty was well attended. I sat with a colleague - a bright phd in anthropology who is well trained in her field, a good teacher and excellent colleague. She is also, as are the vast majority of higher ed faculty a small l liberal. At the end of the debate as we walked out she said, the business professor clearly won the debate - his arguments and data were far superior to the contra. And, she said, I still belief that Wal Mart exploits society!

To me this is compelling evidence of the power of informal institutions, Douglass North was correct, these informal institutions shape the formal institutions and incentives that form the path of evolutionary change. He also points out that, while change is ubiquitous it is very, very, very slow. So the events in Egypt and Tunisia are notable for their rarity. Further, North argues that change is not always wealth or welfare enhancing and, in the long view of history, is most often not. I suspect we will find this the case in both Tunisia and Egypt.

The real questions is what about the US? Our society has evolved a number of formal institutions that enhance and support stability and work to examine and test the evolving informal institutional beliefs that shapte change. This is clearly a positive as belief systems that are formed base upon utopian or unconstrained views of the world are filtered through a set of formal institutions.

That all said, we can use both the Simpsons and Joe Biden as vehicles for a sense of comic relief.
HSR: Joe Biden Channels <i>The Simpsons</i>