Friday, March 6, 2009

The Primacy of Voluntary Exchange

In discussing the role of government in our lives, I am of the opinion that government should try to increase the general happiness (in economic terms we call this utility) of its citizens. But what makes people happy. The government doesn’t know what makes you happy and therefore can’t provide you with happiness. Only you can determine what makes you happy and you display your preferences with your actions. Everything you voluntarily choose to do, you do with the expectation that it will make you happier. Otherwise you would not do it.
Sometimes you make mistakes and take actions that fail to make you happy. Sometimes the actions have both positive and negative consequences. Sometimes the action benefits others as well as making you happy. And sometimes the action harms others while making you happy. Regardless, people voluntarily act in ways that they expect to make themselves happier.
This idea, this Primacy of Voluntary Exchange, is the Hippocratic Oath of Kinky Economics – First, leave people alone. Therefore, any restriction on voluntary behavior, including requirements of involuntary behavior, must be clearly justified, which leads us to the role of government in maximizing utility.
Government, what is it good for? Absolutely nothing. Well, maybe not nothing, but government is the very antithesis of voluntary exchange. It restricts what you can do through laws and regulations and enforces your involuntary support through taxes. Perhaps I am being too harsh. Not everything government does is wrong. Laws that prohibit murder may restrict the voluntary behavior of killers, but they increase the happiness of would be victims. I may not like paying taxes, but I also want services that only the government can provide (or that they can best provide).
Although government does not know what makes you happy, there are some things that government can do to increase overall happiness. Certain responsibilities are clearly the role of government as even the most ardent libertarian will agree. National defense is a government responsibility, although there are differences in regards to the optimal amount of national defense. The legal infrastructure is a government responsibility including both criminal and civil disputes among individuals and legal entities. There is an economic role in providing public goods, adjusting for externalities, and even wealth redistribution. The difficulty is in finding the right role.

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