economists are weird

[Wojtek Sokolowski]

At 08:51 PM 8/24/99 -0400, Doug Henwood quoted:
>ABSTRACT:
>  There is a secret paradox at the heart of social contract
>  theories. Such theories assume that, because personal security
>  and private property are at risk in a state of nature, subjects
>  will agree to grant Leviathan a monopoly of violence. But what
>  is to prevent Leviathan from turning on his subjects once they
>  have lain down their arms? If Leviathan has the same incentives
>  as his subjects in the Hobbesian state of nature, he will
>  plunder them more thoroughly than ever they plundered themselves
>  in the state of nature. Thus the social contract always leaves
>  subjects worse off, unless Leviathan can fetter himself. And how
>  can Leviathan bind himself, if he can always impose confiscatory
>  taxes or choke off trade through inefficient regulations? This
>  Article suggests that schemes of progressive taxation, in which
>  marginal tax rates increase with taxable income, may be seen as
>  a useful incentive strategy to bribe Leviathan from imposing
>  inefficient regulations. Income taxes give Leviathan an equity
>  claim in his state's economy, and progressive taxes give him a
>  greater residual interest in upside payoffs. Leviathan will then
>  demand a higher side payment from interest groups to impose
>  value-destroying regulations. Of course, progressive taxation
>  imposes its own incentive costs, by reducing the subject's
>  private gains. However, these costs must be balanced against the
>  gains from correcting Leviathan's misincentives, and it may that
>  such gains exceed the costs of progressive taxation.

Of course, the problem with that reasoning is the conceptualization of
gov't as a single individual who has 'self-interest.'  That is a blatant
fiction.  Organizations or 'fictitious persons' do not have self-interests,
only 'physical persons' do.  In which case, the actions of an organization
result from some form of combination of the interests of the organization's
staff - as the institutionalists maintain.  Thus, we need to examine the
self-interest of individual actors as well as their power within the
organization to explain how that organization ("leviathan") behaves.

In this specific case, while government staffers may find it in their best
interest to increase the tax base (wage increases, job tenures), that is
not so for the elected officials.  The latter's main source of income (in a
long run) is not their public sector's salaries, but payments received in
various forms (e.g. political contributions, speaking fees, contracts, or
after-the-term-in-the-office sinecures) from the constituents.  It thus
follows, that such individuals' self-interest is to protect the interest of
their paying clients i.e. constituents whose best interst is maximizing
private wealth my minimizing taxes (the prisoner's dilemma applies here).

Moreover, it is the elected officials (congress-men and -women, the prez)
who decide the interest rates.  It thus follows that the 'self-interest of
Leviathan' - to sue the authors' terminology - will be determined by the
elected officials, whose self-interest are aligned with the highest bidder,
whose self-interest include minimizing the taxes - even though in th elong
run it may cause Leviathan to fail to fulfill its mission of enforcing
social contract.  

To summarize, the authors' conceptualization of the 'Leviathan problem" is
fundamentally flawed in that it fails to account for the collective nature
of that entity, and the prisoner's dilemma influence on its behavior.  That
is an 'internal criticism' i.e. using the conceptual framework of the
rat-choice approach assumed by the authors.

wojtek