Resource Optimization & The Role of the State

Interesting article: There’s No Escaping Competition

Scarcity is a defining characteristic of the human condition, and scarcity means there will be competition over who gets what. Market capitalism has the great advantage of channeling that competition through the price system, which not only ensures an ongoing supply of goods but also encourages their efficient production.

We may not be in heaven, but the peaceful and socially beneficial competition of the market is downright heavenly compared to the alternatives.

The author may be committing the excluded middle fallacy: either you have no state involvement or total state involvement, with no middle ground. Obviously, in America (and all developed countries) it’s never black and white. There is some admixture of state (public goods) and private enterprise. But I do agree that the free market is the best path to prosperity, and that free market capitalism is better than communism, but that doesn’t render the state incompatible. Robert Nozik, for example, in Anarchy, State, and Utopia advocates a minimal/night-watchman state (minarchism).

Imagine if a board of economic planners said they would distribute resources to the people who are most honest. It wouldn’t surprise us to see people then start to expend resources to convince the planners that productivity or intelligence were more important than honesty in distributing resources, nor would it surprise us for people to then compete to prove to the planners that they were the most honest, or productive, or intelligent. All of those forms of competition are wastes of resources compared to competing for consumers in the marketplace.

Part of the problem is that disparate impact (which I’ve discussed many times on this blog) and political correctness interferes with the optimal allocation of resources at both the private and public level, hurting job seekers, employers, and students. The fear of litigation prevents the marketplace from running optimally.

As I explain in the healthcare article, if you have a finite good (for example, public healthcare), some form of rationing is inevitable. ‘Rationing’ has become a dirty word in recent years, haunted by the ghosts of Soviet Russia, but it’s unavoidable. There should be some planing in order to distribute public good so that taxpayer dollars are not wasted.

Current public services are inefficient, allocating resources in a way that provides a sub-par ROI. This waste is evident in healthcare, which is a major part of the growing entitlement spending problem. It’s unreasonable to expect the state to go away, but what if existing programs were gradually reformed? For example, a high-IQ basic income instead of welfare – or – welfare contingent upon sterilization, drug testing, and or birth control. Rationing healthcare by IQ and prognosis so that less money is spent on individuals with terminal conditions. How about more funding for gifted education and less special education, or other ideas. As I argue in an earlier article Why Smart People Deserve More, a utilitarian argument can be made for the state to give smart peopel money since the ROI though innovation would be possessive, versus negative with traditional welfare. This would improve capitalism, since these smart people are more likely to use the money to innovate, create jobs, produce research…etc than if you were to give the money to the general population. But at the same time, in agreement with Milton Friedman and others, we can do away with a lot of the regulation that hurts capitalism.

As I argue here and here, these transfers could represent an optimal allocation of capital that may be a tailwind for free market capitalism:

Even though I lean republican/libertarian when discussing economic issues, given the US government’s access to extremely cheap borrowing, an argument can be made for some ‘soft’ crony capitalism (yeah, I know it’s a dirty word) to allocate resources in ways the free market hasn’t, such as with funding Tesla and other tech initiatives, a famous example being the Federal Aid Highway Act of 1956. Contrary to the oversimplified belief that public allocation and free markets must be diametrically opposed, this allocation system can compliment the free market, creating long-term value through the development of new technologies and services, whereas most entitlement spending programs don’t create long-term investment. That’s also why I support more money for gifted education programs since investing in the best and the brightest possibly one of the best investments any government can make. Tesla is worth over $40 billion – a huge ROI from the $500 million that was lent to them, which Tesla has long since re-paid. Good luck getting that kind of ROI with foodstamps or disability.

In addition to programs to help high-IQ people, I support tax cuts for the rich because the rich tend to be smarter than the general population and will use that money for investment, generating a high ROI even if the tax cuts temporarily result in a budget deficit. The problem right now is not the state or with government spending, it’s how the money is being spent/allocated, and the reason for this waste has to do, again, with political correctness, the avoidance of ‘hurt feelings’ over un-egalitarian outcomes, and litigation.