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There are a large number of pieces of legislation on the books that are beyond silly, they are outright unjust and unfair. It may be somewhat shocking how often people choose to obey these rules and regulations, even if by doing so they are violating their own moral principles and hurting their own economic well-being.

Take for example the oppressively high levels of taxation in the U.S. I would bet that 95% of taxpayers would like to pay fewer taxes. I would bet that they think they have a right to retain the fruits of their own labor. So why is tax compliance so startlingly high (even if the underground economy is something like 10% of the US economy)? Or take another example, why do so many businesses allow the pesky bureaucrats to invade their privacy, bury them in mountains of paperwork, and otherwise make it hard for them to prosper? Why will so many people fill out their Census forms in full, even though nothing in the law requires providing any more than a head count of who is living in your house?

Why do we not see more Civil Disobedience in light of these manners? One possibly answer is that I am wrong, and that people like having the government treat them like children, and they like having the government steal their property. I doubt it. Even the most ardent Progressives seem to treasure their own property – they just like to tell you what you should be able to do with yours.

A second possibility is irrationality. After all, the field of behavioral economics is chic today. If we see something that does not seem right, we just posit that individuals are not as rational as economic theory suggests they might be, and we throw out all of economics as a result. Ignoring the issues with behavioralism, then what is the usual proscription promoted by the behavioralists to help people who seem to be doing things that are not in their own interest? The proscription is for government to “Nudge” them into doing things that are better for them. If in fact having a smaller and less intrusive government is what people truly want, but something about human frailties prevents us from doing things to vocalize this and act on it – then it is the proper role of government (say the behavioralists) to help people get … less government. For the sake of consistency, I’d like to see the behavioralists come out and offer this up as a reform. The reform itself is, of course, paradoxical – you cannot have government nudge people to get less government. Further, my suspicion is that the behavioralists among us would never come out and support such a policy, even if I could demonstrate that people really did want to Civilly Disobey their government? Why is that? Because the psychological-economic revolution that is behavioral economics is not about pushing the envelope in economics, it is not about trying to develop a theory of mistakes, it is yet another intellectual attempt to put a pro-statist, coercive worldview on a solid intellectual footing. In other words, it is an ad hoc elaborate justification for more and bigger government (controlled by the people who understand behavioralism, of course). This is no different than the justifications of government intervention based on faulty public goods arguments and weak information arguments. I’d be floored if a behavioralist came out and supported such a position.

Is there any evidence that I am right about people wanting less and better government? Well, I think so. The approval ratings for Congress are 25% – so if people seem to hate Congress so much more than even the most evil of corporations, then how come we follow its rules? And if people really loved government so much, then why are there more private policemen in the US than public? Why are there private communities? Why do we use FedEx and local letter carriers instead of the post office? Why do people eschew “free” public schools and “choose” private schools? And so on. So there is something latent in us that does not wish the government to do much more than defend our freedoms.

Onto my major point. There is a third possibility for why we do not see more civil disobedience –that acting out in Civil Disobedience is a “market” that is subject to failure. How might this be so?

The reason oppressive government can exist at all is that it relies on the sanction of the majority to do the bidding and abide by the force imposed by the minority. The Nazis recognized this. The Soviets recognized this. And the clowns in Congress surely recognize this (why else would they bother campaigning publicly for our support for various programs). Consider the case of taxes. Only 2% or so of tax returns are even considered for an audit, and only a small percentage of those actually get audited. Or take withholding. The only way governments can amass such fortunes from the private sector is by “asking” employers to directly take out of their employees’ paychecks the portion that they would have to pay in taxes. There are not nearly enough guns or bureaucrats to enforce these provisions. Yet, obedience to these laws is an equilibrium condition. Why?

Well, for a situation to be an equilibrium condition, it must mean that an individual actor cannot change his behavior, conditional on what everyone else is already doing, and make himself better off. In this case, the optimal amount of obedience is a function of the expected gains from paying less taxes (or from having happier workers with no taxes withheld from their paychecks) and the expected costs of doing this. When few people are disobeying, the probability that you will get caught and punished is fairly high. Therefore the optimal amount of disobedience is quite low when no one else is disobeying. As an analogy, think about a classroom of 200 students. When all the students are obeying the professor and listening during lecture, and not hanging out on Facebook, or texting their friends, or whispering to the kid sitting next to him, then the first person that opens up his phone or laptop or blabbermouth, will very easily be noticed by the professor. In a class of initially obedient students, you might expect this equilibrium to persist. But if the class already happens to have many disobedient students, the probability of being noticed if you now choose to be disobedient, is lower (the cost of bad behavior is lower) so we should expect an increase in the amount of disobedience until such point as the situation becomes intolerable to the professor and students and something drastic is done (i.e. banning computers, allowing everyone to BS during class and simply posting lectures online, etc.)

In the world of government rules and taxes, the same thing happens. So long as most people obey, the costs of disobeying are going to be very high for the marginal Thoreau. But if for some reason lots of people were already disobeying, then the costs of disobeying are much lower for the marginal Thoreau. We see this on the highway – the cops cannot pull over everyone who is speeding at 70 miles per hour if everyone goes 70 miles per hour, so cops rarely pull anyone over at 70 and instead wait to pull over people going 75 or 80 or more (unless you travel in rural Western New York, where entire municipal governments are funded by traffic revenues).

Therefore the U of R continues to withhold my taxes although their workers would be better off if they did not. All of us continue to pay our taxes even if we are morally repulsed by the very thought of it. In “econospeak” the civil disobedience market falls apart because of an externality problem. When I choose to disobey, I do so based only on the expected benefits and costs of disobeying … to me. In other words, I weigh my private marginal benefits of disobeying (e.g. more money, better moral direction, etc.) against the private marginal costs of disobeying (e.g. the probability of getting caught times the costs of getting caught) and choose an appropriate amount of disobeying. Hence, much of my “disobedience” consists of my blog and what I teach my students. However, when I choose to disobey, what also happens is that I lower the cost of disobedience for everyone else. In other words, the act of disobeying confers a positive externality on my fellow citizens. The economic problem is that since my fellow citizens do not compensate me for this added benefit to them, and I cannot reasonably exclude my fellow citizens from enjoying these benefits, then from a “social” perspective, the marginal social benefits of me disobeying exceed the marginal social costs – so the social optimum would be to get more disobedience. In other words, since I cannot capture all of the gains to my disobedience, then I do not disobey enough from the standpoint of society.

Now here is where you might laugh. What is the canonical textbook solution to a positive externality “problem?” It is to subsidize the activity that produces the externality. In the extreme, if the “free-rider” problem is severe enough (i.e. the folks who enjoy the lower costs of being detected because of MY disobedience free-ride off of my efforts) then governments often tax everyone in the population and then produce the good themselves and provide it for free to everyone.

How would that work in the “market” for civil disobedience? In the simple case, should government pay me to stop paying my taxes? Should it pay me to stop withholding taxes from my employees’ paychecks? Should it pay me to not fill out my entire Census form? Or in the extreme, can the government tax all of us and provide “Civil Disobedience” to us for “free?” What the heck does that even mean?

We therefore seem to have an insoluble economic problem. I’d love to see pro-government activists who believe in the “public-good” try to support government intervention in markets on public goods grounds, and then not support efforts to promote civil disobedience? And if they wish to argue that it is not appropriate for government to promote civil disobedience, a market for which there seems to be a clear market failure, then on what grounds could they advocate intervention in other areas where “markets” seem to fail?

In markets where failures tend to exist, the loss of welfare from the market failure normally presents a large profit opportunity for an entrepreneur to exploit. That is exactly how the lighthouse problem got solved. If lighthouses are true public goods in the sense that it is hard to exclude non-payers from enjoying the benefits of the light – there would seem to be huge gains to be made for someone that figures out a way to capture these foregone rents. In fact, private lighthouse operators did just this by bundling lighthouse fees with other services that were easy to exclude non-payers from enjoying – such as fueling and port fees in the harbors where the lighthouse rests. Typically in a market, either a technology will develop or new institutions will develop to adapt to this problem. But it is hard to see how such a thing might emerge in the disobedience market. Or is it?

There is some sort of signal that people can play on the highway to help them disobey. While I am driving 65 mph, I can literally see that other people are committing to disobeying the law by driving faster than me. And even before everyone starts to speed, the mere act of putting my left turn signal on with the intention to pass the car in front of me, is a way for other drivers to know that they will not be alone when they decide to speed up too.  In other words, the act of another driver speeding up is the way I capture the positive externality of my speeding up.

Is there any such way to commit your neighbors, friends, employers and other tax slaves to disobey? I can imagine some and we will explore these in future posts.  To begin answering this question, you should ask the question, “What forces are keeping technology or some other institution from mitigating this problem?” And then ask where the opportunities for gain exist.

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