Agorism, pt. 1: A Simple Model

Libertarians are in a dilemma when it comes to politics. On the one hand, most are very pessimistic about political action: markets work, politics doesn't. On the other hand, it seems that the only way to a libertarian society is politics.

To solve this, Samuel Konkin proposed a market solution (agora = market). In a long polemic, he claimed that by working on the black market, libertarians could spur a gradual economic secession from the state. More and more people decide to work on the black market, until the state either gives up or loses all relevance.

The Model

Like their legal counterparts, black market entrepreneurs respond to incentives. Thus, black market activity can be modeled economically.



A black market entrepreneur avoids taxation and regulation, and this acts as a subsidy for his business, relative to his legal counterparts. He also pays extra to escape government harassment, and this acts as a tax.

The main determinant of the existence of a black market is the relative sizes of the subsidy and the tax. If the subsidy is greater than the tax, the good is provided cheaper on the black market, and the black market thrives. If the reverse, it's provided legally.


Konkin isn't very clear about why he expects agorism to succeed, but the 28 years since the publication of his essay have not been kind to his thesis. Black markets have only been widespread for goods that have been outlawed — marijuana, illegal immigrant labor, and so on. (In cases where a good is banned, its legal price is infinity— it can't be bought legally— and this guarantees it will be sold on the black market, if at all.)


Later I will discuss network effects, more problems with agorism, possible solutions, and the potential of this strategy.

(pt. 2)

Is Government Still an ESS?

A few posts back, I proposed that MAD-based defense could substitute for national defense


Not only does this solve the public goods problem, it suggests a new libertarian strategy: nuclear revolution.

This is from my response to _____ (that's seriously his name)-

Let's assume that you're a customer of a retaliation business, and terrorists get a hold of a nuke of their own, and try to use that to threaten people. Now the retaliatory agency has a choice-- mutual destruction (of customers and terrorists, that is, not necessarily the company itself), or give in to the terrorists. You'd think they'd give in to the terrorists.

But the people running these retaliatory agencies are probably going to be smarter than that (if they get any business). The game theorists behind MAD put a lot of emphasis on credibility, that is, the likelihood that the company will actually go through with mutual destruction if attacked.

In your thinking, the company didn't have any credibility, and thus the defense could be overcome. But an effective company is probably going to have some kind of mechanism in place that guarantees that any transgression will end in mutual destruction. If terrorists threaten customers, they are destroyed, guaranteed.

Maybe the source of a guarantee is a computer program that controls the nukes/whatever and can't be altered. Maybe the company agrees contractually to pay an outrageous sum if it doesn't follow through. There's room for experimentation here.

If the thread of MAD is credible, then a society using a defensive strategy can't be invaded by an agressive strategy. (I mean "invade" in the game-theoretic sense -- attackers always get a lower payoff than defenders. Attackers are guaranteed to die, while defenders have a good chance of coming out alive. The defensive strategy is an ESS.)

And in fact, the defensive strategy is the only ESS here. Because of this, the field is wide open for revolutionaries-- provided they stick to the defensive strategy. The governments of today, as far as I know, use no systematic nuclear strategies, and would have little credibility if they threatened to use a nuke offensively-- the risks wouldn't be worth the benefit.

So if a defense company got a hold of a nuclear weapon, or contracted with someone else who had one, they could conceivably hold the entire world at bay. Their customers could live lives unhampered by organized coercion.

Freedom is only one nuke away.

National Defense, On The Market

Wikipedia, mutual assured destruction:

The doctrine assumes that each side has enough nuclear weaponry to destroy the other side and that either side, if attacked for any reason by the other, would retaliate with equal or greater force. The expected result is an immediate escalation resulting in both combatants' total and assured destruction. It is now generally assumed that the nuclear fallout or nuclear winter resulting from a large scale nuclear war would bring about worldwide devastation, though this was not a critical assumption to the theory of MAD.

The doctrine further assumes that neither side will dare to launch a first strike because the other side will launch on warning (also called fail-deadly) or with secondary forces (second strike) resulting in the destruction of both parties. The payoff of this doctrine is expected to be a tense but stable peace.

National defense as commonly envisioned is not excludable. Armies, air forces, and so on aren't capable of selectively defending small areas -- they can either defend a large area or no area at all. This is a problem for libertarians. Without the ability to exclude non-customers, a market cannot form, and the libertarian society cannot protect itself. The resulting equilibrium is government-provided national defense.

Retaliatory approaches, like MAD, however, are easily excludable. If a customer doesn't pay, and if his land is invaded or destroyed by some opposing force, the retaliation business simply doesn't retaliate.

It is thus possible to privatize national defense. People contract with a retaliation company, and attackers avoid them for fear of annihilation. People not contracting may still be attacked, so they have an incentive to pay for the service, and national defense is provided efficiently, on the market.

Furthermore, this approach doesn't necessarily require nuclear weapons. Perhaps a company could retaliate with assassins who kill the person that gave the order to invade a customer's property (and maybe his family, too). There are plenty of creative possibilities waiting to be explored by a society allowing experimentation.

Intelligence and Political Views

Interesting essay here.

His three conclusions about intelligence:

1) Social liberals are smarter on average

2) Fiscal conservatives are smarter on average

3) Radicals are smarter on average

From this, it follows that the ideology with the highest average intelligence is probably market anarchism.


I won't comment on the relationship between intelligence and realistic beliefs right now.

On Hot Girls and Government

For almost a century, the negative externalities theory of Arthur C. Pigou has guided political theory. (Be patient. I'm getting to the hot girls.) The theory works like so: when two people trade, there may be side effects (externalities) for a third person, such as pollution. These effects are not taken into consideration by the two traders, who are only worried about their own welfare. Because effects on the third person are ignored, too many externalities are created. The end result is inefficient. Pigou's solution is to tax activities that lead to negative externalities. (The opposite is true of positive externalities.)

For example, many men enjoy seeing groups of hot girls blasting heavy metal in convertibles. According to Pigou, since the girls don't take the men into account when planning their roadtrips, there are fewer groups of mobile metal girls than would be socially optimal. He would have the government subsidize the roadtrips to compensate.




Coase changed this. His insight was simple — the third person doesn't sit back and let other people make decisions that affect him. He gets involved.

The results of the Coase theorem (see David D. Friedman's explanation, or one of Ronald Coase's original papers) are that

1) when transaction costs are low, the market works optimally, and

2) when transaction costs are high, it doesn't.

According to the Coase theorem, men would pay hot women to blast heavy metal — but they can't, because there are too many men, and we can't organize the payments among ourselves.


I am going to argue in this post that high transaction costs, which are often used to justify government intervention, can be cut more efficiently by private enterprise, without abandoning the optimal outcomes of the market.


Transaction Costs

Transaction costs are simply the costs of making a transaction. (It tends to be higher when more people are involved, if only because more coordination is required.) If Bob has a good worth $5 to him, but $10 to George, and George has a good worth $5 to him but $10 to Bob, then it seems natural that they'd trade. But if it costs Bob more than $5 worth of effort (or gas, or whatever) to organize the trade, they don't trade. It wouldn't make sense; Bob would lose money. Thus as the transaction costs go up, a trade must be more and more profitable to occur.

This in itself isn't used often used to justify government intervention. The government obviously has similar transaction costs. People have to reach some sort of agreement, pay shipping costs, etc., regardless. The major transaction cost problem used to defend government is a special case — public goods.

Public goods are goods that can't be provided individually — say, national defense, a clean environment, or hot girls driving convertibles. This creates a mass prisoner's dilemma. Everyone wants the public good, but to get it, the cooperation of a large number of people is required. However, each person, individually, would be better off not cooperating. If everyone else contributes, and the good is provided, then the person gets the good regardless of whether he pays. If no one cooperates and the good is not provided, the person is better off not paying. The money would be wasted, since no one else is contributing.

Table-wise, the payoffs for each course of action look like this (the player on top gets the first payoff, the player on the right gets the second):

	Cooperate	Defect
Cooperate	2, 2	3, 0
Defect	0, 3	1, 1

No matter the circumstance, each individual is better off not paying. And yet, at the same time, each person would prefer to have the good. This is the problem.

The key to solving the prisoners' dilemma is changing the payoffs. The ideal payoffs look like this:

	Cooperate	Defect
Cooperate	2, 2	0, 1
Defect	1, 0	0, 0

In this case, the best choice of each individual is always to cooperate.

Many have assumed that only a government can directly alter the payoffs. However, a mass contract could accomplish the same thing neatly, if it has an enforcement mechanism. For example, a contract could be propagated with these three clauses:

1. The signer will pay a certain fraction of the cost of the public good.

2. The signer will boycott (or punish in some other way) those who don't sign the contract.

3. This contract is only valid after a sufficient amount of people (the number to be determined by the situation) have signed it.

(3. is required to make sure there are enough signers to make the threat of punishment severe enough to discourage defection.)

This kind of contract would replace the prisoners' dilemma with a situation where the most profitable choice is always to cooperate.

If one man signs the contract and no one else does, he loses nothing — the contract is only valid if enough men sign for it to take effect. If one man signs it and many other men also sign it, he gets more headbanging highway hotties. If many other men sign it, but he does not, he does not gain as much because other men boycott him.





Business

This creates a role for a transaction company. Someone is needed to determine the best course of action, collect the payments, provide a way to discriminate between signers and non-signers (so signers know who to boycott), and make sure there is no cheating. The company could take its profit from the payments. I estimate the cost of this would be about ten thousand dollars, depending on the amount of people involved — probably less than current government solutions.

Even if this somehow is more expensive than government solutions, there is still a strong argument for adopting the private system. First, as public goods will be sold on the market, their allocation will be efficient in ways a government can't possibly imitate — supply will finally equal demand. Second, competition will give an incentive for improvements and therefore a constant lowering of transaction costs. The same cannot be said of government solutions, since they require a monopoly by definition. The governmental system allows no competition and has changed little in over two hundred years; the private system would quickly pass it up.

On top of that, the government suffers from its own public goods problems, as demonstrated by Buchanan and Tullock, 1962, Olson, 1965, and Caplan, 2007, among others. In real life, transaction costs aren't cut by government, only reorganized.

This is why there is no government subsidization of hot babes.



(Now if we could only legalize prostitution...)

My Beef With Thomas Hobbes

Thomas Hobbes is the father of modern political philosophy. I think he should have been burned at the stake. This is why:


Hobbes was a conservative — which, in the terms of 1651, meant he was a totalitarian monarchist. In his highly regarded book, Leviathan, he sets out to prove that totalitarian monarchy is based on a “social contract”, and is, therefore, completely moral. In other words, tyrannical dictators are OK, because the populace agrees to be controlled.

This theory is wrong on every relevant level.


First, it is historically inaccurate. There has never, in the history of the world, been a coercive government which resulted from a contract between individuals. Hobbes says this doesn’t matter. His apathetic attitude is impossible to defend, for a contract that hasn’t been signed is void. If government should be a contractual creation, and no one signed a contract, it follows that there should be no government.


He then goes on to explain that life without government is, to use the famous quote, “nasty, brutish, and short”. This is because no agreements are possible in an anarchy. There must be a government to enforce the rules:

For if we could suppose a great Multitude of men to consent in the observation of Justice, and other lawes of nature without a common Power to keep them in awe, we might as well suppose all Man-kind to do the same; and then there neither would be, nor need to be any Civill Government, or Common-wealth at all; because there would be peace without subjection.

He assumes agreements can't be enforced without a government, then assumes that an agreement to create a government can be enforced. As he has admitted, his assumption that a government-creating contract can be enforced obliterates the need for a government in the first place. This is characteristic of Hobbes. As long as it favors the monarchy, logical consistency is unnecessary.


Another flaw is his inconsistent use of the word "contract". The entirety of Hobbes' argument depends on a definition of contract which excludes coercion. Why? Because contracts are regarded as more ethical than forced relationships only because the former are voluntary, that is, non-coercive. By altering the definition of contract to allow for coercion, he alters the moral composition of contracts, so that they aren't automatically ethical. Imagine: "Rape is not a crime. If a woman didn't want to be raped, she wouldn't walk alone after dark. As you can see, rape is completely moral." It's the same bait-and-switch. All he did was give coercion a new name. He even, in a Freudian slip, consistently refers to government as "coercive", despite the explicitly non-coercive nature of a contract.


Lastly, his description of the state of nature is completely outdated thanks to modern sociobiology. There is wide agreement among psychologists that morality is an evolved, and thus inherent, property of human individuals. Thanks in part to this, it has been shown, historically and theoretically, that in societies in which every person knows every other, order can be kept without a government. This is due to a tit for tat strategy — basically, revenge — that we've evolved to cope with social environments. As long as a person can keep track of criminals, the potential for revenge creates a strong incentive for cooperation, and peaceful society is possible. (Axelrod, 2006) In short, the Hobbesian state of nature does not exist.


To sum up Hobbes’ argument, he says, and I paraphrase, “People should accept the coercive power of the government because
1) They signed a contract — well, OK, they didn’t really sign a contract — and they did this because
2) Anarchy is perpetual war, and no one can reach agreements while in it — except when they want to create a state — and
3) Even though contracts are, by definition, non-coercive, this one is coercive — hey, I’m writing the book here, it can be coercive if I want it to be — and
4) This defies all psychological and historical evidence, but that’s not the point. The point is that
5) People cannot be free.”





In Conclusion:

The social contract theory is not only historically inaccurate, psychologically inaccurate, and logically indefensible, it also presupposes that men can create and abide by contracts in the absence of state authority, which is more appropriately the basis for a contractual anarchic society. Q. E. D.


Hobbes' theory has been indirectly responsible for more misery than that of any other in history. I hope he's tortured by a totalitarian government in Hell. (The torture being voluntary. Otherwise he'd leave, right?)