Libertarian States

This post by Noah Smith, coupled with Governor Perry's thoughts on federalism outlined by Mathew Yglesias here, have left me wondering just what kind of state conservatives and their libertarian allies would build. Noah's post takes a passage from a book that I loved, Why the West Rules--For Now, dealing with the need for 'high end states' in order for societies to advance and overcome the social, economic, and political problems that their size and complexity generated. Ian Morris, the author of  the book, compares these 'high end' states, which have larger bureaucracies and use higher taxes to pay for this increased government role, to 'low end' states that are based on a form of tribal or military allegiance that has a basically no centralized bureaucracy and consequently less need for the high taxes of the 'high end' state. As Noah points out, Mr. Morris does not think the fact that high end is more advantageous than low end need any explanation. To which Noah replies, 


"Econ 101 provides a perfectly plausible theoretical reason why "high-end" strategies might succeed better than "low-end" ones. That reason is public goods. The tax money that governments take in doesn't all get wasted or mailed off as Medicare or welfare checks. Some of it goes to pay for roads, courts, police, schools, research, and a bunch of other very important things that private companies cannot or will not provide in sufficient quantity. If high-end states outperform low-end ones, it is because they provide the public goods that low-tax, low-spending governments can't create. 


This, to me, is almost self evident, though I do wonder what a libertarian would think in this situation. High end states certainly out-competed low end ones, and the reason for this was their ability to mobilize public funds for public goods. These public goods, like irrigation systems, allowed for increased productivity as compared to their low end brethren. So while roads, or universal education might come about in a low end world using only private initiative, they come about much sooner by government action. 


But as Mr. Morris points out, "Rising social development generates the very forces that undermine further social development. I call this the paradox of development". And this is were it gets interesting. Could it be that the high end states that have been built are being fundamentally undermined by the growth that they created. That is, does the welfare state in something resembling its current form need the growth that was generated by the industrial revolution in order to sustain it. As Noah notes, 


"High-end states that succeed in times of economic expansion can fail dramatically in times of stagnation or contraction. As growth hits its limits, the big bureaucracies that helped generate and stabilize the growth are no longer needed...but institutional momentum keeps them around past their sell-by date, dragging the economy down with inefficiency until a breaking point is reached, and a high-end state collapses into a new low-end equilibrium."


He makes the case that this can be seen as something like the libertarian perspective; that the growth that came from the the discovery and use of fossil fuels has led to the rise of massive bureaucracy for the redistribution of the wealth that has been created by this unprecedented increase in productivity, and that as this growth slows the inefficiency of the governments resource allocation will become more apparent as all the simple public goods have already been done. Which leads to the eventual default of the government. 


While Noah points out evidence that this is not the case, he never the less acknowledges that he could be wrong. To this I say hogwash. To me there seems to be no reason that the U.S., or any other developed government for that matter, could not maintain something close to its present size while still funding itself into perpetuity. Let's look at the U.S.; for the last 10 years we have spent considerably more than we have brought in through revenues. Though the key point would be that this does not have to be the case,i f we would have avoided the two drawn out wars, the two tax cuts, and the unfunded Medicare Part D our finances would have been in very good shape, while growth would have stayed about were it was. Going forward all we need to do is reform our health care system and SS while raising taxes slightly and we should be solvent for decades, if not centuries. I am not an economist but it seems to me that growth should not be a prerequisite of a fiscally sound country, that is, that we should be able to putter along at some sort of equilibrium until the next spurt in growth. I think that if most people, meaning non-libertarians, looked at what the government spends money on they would come to the conclusion that most of it is not only necessary but desirable. We spend the largest amount on insurance for the old, poor and disabled. Then comes the military, which should shrink by the most. Finally we get to the rest of the government, which it turns out is only about 19% of the budget, and this is where the government still does some real good. The repair and maintenance of roads and infrastructure, the installation of new infrastructure (such as electric charging stations), basic R&D, law enforcement and the courts, and education have all been shown to be areas that the government provides real services that the private sector wouldn't, or couldn't, come up with the necessary funding. 


And this core component of what the government does, coupled with the pared down military and the entitlements, not only are affordable but also speed the up the process of reaching the next stage of growth.  To a libertarian I would say, what institutions are going to bring us down? Welfare? The entitlements? Other discretionary spending? I think not. We can fund these things with a relatively modest tax rate, so while we could certainly kneecap ourselves fiscally, this doesn't have to be the case. Though on a more troubling note the right has been looking at a good kneecapping bat, so who knows.