Responses to Slate Star Codex's Machinery of Freedom review

Scott Alexander’s 2015 review of David Friedman’s Machinery of Freedom includes a few interesting objections. Here I answer them as best as I can.

Most of the discussion here relates to the incentives faced by Rights Enforcement Agencies, which I’ll abbreviate to REAs.

1. People who don’t purchase protection are pretty much fair game for anyone to rob or murder or torture or whatever. This seems harsh, especially since this society is likely to have a sizeable underclass. I don’t know if “$20 for a year of police protection” was a reasonable estimate for the 70s, but I expect this would be much costlier now. Compare the percent of people who, pre-Obamacare, still didn’t have health insurance, and how much higher it would have been if there weren’t government programs that kind of got health insurance bundled in with employment

In a Friedmanian ancap situation, public property doesn’t exist. So any instance of murder, torture or other abuse would be taking place on private property. I would prefer to do my shopping in an area free from murder and torture. I’m sure most people have the same preference.

If it came to light that this kind of abuse had happened, and the owner of the place had attempted to cover it up, they would suffer reputation loss. So there’d be a general incentive for private property owners to take steps to ensure that this kind of thing doesn’t happen on their land — whether the victims were subscriber to a rights enforcement agency or not.

It’s possible that some owners choose to bar the unsubscribed from access entirely (this might depend on the general rate of REA coverage in the population). But it seems likely either way that owners would have measures in place to quash any violence initiated in their zone, and to see the perpetrators prosecuted, for the sake of keeping it an attractive destination for visitors.

To the extent that abuse of the unprotected was a problem, I’d prefer to contract with a REA that dedicated some proportion of its resources to pursuing justice on behalf of these unsubscribed. For instance, by tracking down their killers. For the safety of myself and my family I would also strongly prefer that any killers in my neighbourhood were pursued. Not merely those who’s prior victims were subscribed to a REA.

An REA would prefer not to have any killers at large in any area where their customers live   to prevent expensive future claims. And there would likely be some brand-enhancing prestige attached to being the firm to apprehend a killer on the loose.

There’s a possibility of free-riding by agencies here, but bearing in mind all of the above, it seems unlikely that the equilibrium settled on would allow killers to roam free.

I see no reason that competitive REA provision would be expensive relative to the price of monopolistic police protection. I’d expect it to be much cheaper and of much higher quality thanks to the discipline of the market.

As I understand it, health insurance in the US is an industry subject to very heavy distortion through state intervention. It is very far from a freely competitive market, and has become something that is arguably no longer insurance at all (see preexisting conditions). All this results in unnaturally high costs. So pointing to a historically low rate of health ‘insurance’ in the context of heavy state intervention doesn’t say much about the likely rate of REA coverage in a competitive market.

One effect of employer-provided health insurance is that it obscures the cost of that insurance from the consumer, which allows insurance firms to price their products more highly than they otherwise could. So it’s not clear that employer-provided insurance has a net positive effect on the rate of health insurance.

2. Protection agencies are going to be engaged in constant brinksmanship for the same reason nation-states are engaged in constant brinksmanship. If Agency 1 wanted concessions from Agency 2, it has an incentive to seem kind of crazy and like it might actually declare real war, however unprofitable, in order to bluff Agency 2 into complying. Remember, countries have the same economic incentives to avoid war that companies do, but they still occasionally get involved in them. Even when they don’t, the threat of such leads many resources to be wasted in military buildup.

Heads of state and heads of firms are in very different situations with respect to the considerations that might lead them to war. In my view the balance lies strongly in favour of heads of state entering war more quickly than heads of firms would.

1. Generalising: Heads of state are self-selected for charisma, power hunger and machiavellianism. Heads of successful firms are self-selected for ability to deploy resources to provide goods/services at a price lower than the public’s valuation of the offering. The personality types drawn most strongly to statesmanship are more predisposed to entering military conflict.
2. Heads of state do not stand to lose personally from the costs of war — they are generally democratic ‘caretakers’ who can hand off the economic mess they’ve made (or worsened) to their successor. The economic fallout generally manifests after they’ve left office.
3. Heads of state can fund war through national debt and taxation, treating these sources as an inexhaustible war chest.
4. For whatever reason, public support for heads of state often increases in times of war. Even in the absence (from my perspective) of a very compelling narrative about the justness of the war. So heads of state can be expected to be belligerent for the sake of public opinion. It’s not clear that any analogous dynamic applies to heads of firms. Perhaps part of this difference has to do with a head of state inheriting a measure of loyalty and respectability from being the figurehead of an institution to which many people are ideologically loyal, the state. No private firm commands this kind of loyalty, and I don’t believe this would change if ancap conditions obtained.
5. If a private firm wants to go to war, it ultimately needs to fund the necessary expansion (hardware, staff, training) by increasing subscription fees to its customers. In Friedman’s ancap situation, REAs are geographically overlapping, so the cost of switching to a cheaper competitor is much lower than the very large costs of relocating to a different country in our current situation (assuming choosing a new political ruler is even possible). It’s not at all clear that a REA could successfully fund a war under these conditions.

3. Security companies and their clients are very unlikely to want to pay for the cost of incarcerations. There’s no incentive to pay extra for criminal rights, so convicted criminals are likely to end up facing something like corporal punishment Never mind, this went an unexpected direction and is probably a good thing.

I think a likely outcome in many places is that criminals would be ordered to pay restitution to victims. If they could not afford that, they would be enslaved. The victim or heir would likely have the option of selling the slave to a labour firm. Alternatively, if the idea of enslavement is rejected by the local population, the result may be that the criminal is blacklisted in such a way that they are no longer welcome in the majority of the stateless zone. In this case, labour firms would compete with one another to attract the future labourer to ‘sign up’ with them–providing protection, board, and lodging in exchange for labour.

5. There are some things which might decrease crime in an area in general instead of just involving crime against a specific person. For example, adding streetlights, fighting drug abuse, putting troubled youth in after-school programs, fighting the broken window effect. If these are public goods, nobody will be incentivized to pay extra for them.

I believe that private ownership of land would make some of these non-issues (adding street lamps, avoiding the broken window effect). The examples concerning youth problems could plausibly be handled by charitable organisations.

I expect that net donations to charities would be considerably higher than in our current situation. Both because real income would be higher absent state interference, and because people would not have the feeling that they were already ‘doing their part’ for the vulnerable through taxation (much of that transfer ending up wasted on bureaucratic overhead).

It also seems likely to me that a donator would tend to prioritise local charities, since they’re the ones likely to ameliorate the problems she sees daily, and the ones that are most likely to have some effect on her quality of life. This would have the side-effect that, relative to government welfare programs, philanthropy work would be subject to a higher degree of social control.

6. In fact, protection agencies have a strong incentive to make everybody as scared of crime as possible, and in fact to raise the actual crime rate if they can, in order to get people to buy their Premium plan. Given that this is anarcho-capitalism and there are no laws against crime, this can’t possibly end well.

REAs are incentivised to take steps to prevent crime, since dealing with crime increases their operational costs. To this end they might install security systems for their clients connected to their fast response network. Perhaps they’d even issue specially prepared firearms to their qualifying clients too — barrel-cams, palm-activation. These things become part of the package enticing prospective customers (who’d also prefer to minimise the chance of being a victim) to sign up.

On the other hand, deliberately raising the crime rate somehow would also raise their operating costs. Even if the trickery went undetected it’s not clear it would be a net win for the trickster firm.

Probably most important: Deliberately increasing the crime rate risks irreversible harm to the firm’s brand.

As far as we know, most of the time, existing private protection firms aren’t covertly encouraging criminal violence. Home security firms aren’t funding break-ins etc. There are counterexamples. For instance firefighter arson. But I don’t see a clear case for assuming this would happen more often under stateless conditions.

A Rights Enforcement Agency might like to have people scared of crime, but this would be checked against an incentive to be seen as a credible and trustworthy firm. If they were perceived as liars or fear-mongers they would lose out to competitors with a better reputation for honesty.

Relevant here too: For state police departments, when local crime increases, or the rate of solved crimes drops, the department is likely to receive extra funding. Having no competitors, I think we can expect that this perverse incentive is giving us a very bad outcome relative to what would be possible in a competitive law regime.

7. It would be hard to have large-scale public laws. Right now Saudi Arabia can have laws about how no woman can go outside unveiled, America can have laws that nobody can go outside unclothed, and some European beaches can have laws saying go ahead and be naked. Likewise, some small villages can have zoning laws saying not to build non-scenic skyscrapers, but Dubai can say to build as high as you want and then some. This seems harder under anarcho-capitalism until people start coordinating the formation of intentional communities, at which point it becomes less anarcho-capitalism and more Patchwork.

I don’t understand this objection.

8. Gang leaders and barbarian warlords had the chance to become protection agencies like this, but never did. This suggests that this system is unstable or unnatural. It’s possible that once the equilibrium of protection and arbitration agencies is established it will be stable, but of all of the various lawless societies to exist throughout history, none of them coalesced upon this system. Suspicious.

It’s possible that for ancap to obtain, certain beliefs have to be widespread that historically haven’t yet been. Here are my candidates for necessary conditions:

1. There is a widespread appreciation of the importance of property and trade.
2. And there is a widespread belief that the state is an immoral and/or unnecessary institution.

9. An extension of this: it’s unclear that we’re not already living in this society. It’s just that one protection and arbitration agency has completely taken over from all of the others and instituted a policy of using force against those who don’t pay for its services. That’s allowed under anarcho-capitalism because everything is allowed under anarcho-capitalism. So expecting anarcho-capitalism to be stable is expecting the thing that has already happened to not happen again a second time.

We might agree that there’s a limit to how analytically useful this distinction is but definitially we’re not living in an ancap society because we currently have political rulers.

10. There seems to be a lot of opportunities for rich people to purchase greater privileges not available to the masses. After all, negotiation results are often determined by a party’s BATNA. Rich people may have access to very strong security companies (or premium plans from regular companies) that could win most fights; they can use this to insist on better arbitration terms. A rich person’s company might only accept basic arbitration (eg punish the rich person for murder) if other companies agree to lopsided deals (like don’t go after the rich person for less dramatic things like sexual harassment. On the other hand, a poorer person’s company might have to accept the worse side of the deal, where the poor person can be prosecuted for a very wide range of crimes against the rich person, including giving offense and not being respectful enough. Yes, it’s easy to see how a company could arise that charges extra in exchange for not accepting these compromises, but this still suggests you’re going to have more rights if you’re able to pay more money.

1. It’s not clear that rich people would choose to do this. They would need to be willing to pay more to remove the poor persons rights than the poor person was willing and able to pay to secure them.
2. If rich people did do this it would mean they were indirectly subsidising the disadvantaged poor on an ongoing basis. Perhaps this outcome is desirable.
3. A manufacturer of cheap cars doesn’t necessarily do worse than a manufacturer of luxury cars. Depending on how you slice it, relatively poor people are collectively a much bigger market than relatively rich people. It’s possible that this revenue source would be plenty to secure equal legal rights with the rich (with the rich enjoying premium service that was enhanced in other ways — e.g. better response time, personalised patrols). It could even go the other way — the rich compelled to accept law preferred by the poor because no firm can find a profitable way to offer exemption.

Here, David Friedman talks more about these considerations:

And here’s Roderick Long talking about the relative power of the wealthy under different regimes.

Certainly, you’ve always got some sort of advantage if you’re rich. It’s good to be rich. You’re always in a better position to bribe people if you’re rich than if you’re not; that’s true. But, under the current system, the power of the rich is magnified.

Suppose that I’m an evil rich person, and I want to get the government to do something-or-other that costs a million dollars. Do I have to bribe some bureaucrat a million dollars to get it done? No, because I’m not asking him to do it with his own money.

Obviously, if I were asking him to do it with his own money, I couldn’t get him to spend a million dollars by bribing him any less than a million. It would have to be at least a million dollars and one cent. But people who control tax money that they don’t themselves personally own, and therefore can’t do whatever they want with, the bureaucrat can’t just pocket the million and go home (although it can get surprisingly close to that).

All I have to do is bribe him a few thousand, and he can direct this million dollars in tax money to my favourite project or whatever, and thus the power of my bribe money is multiplied.

Whereas, if you were the head of some private protection agency and I’m trying to get you to do something that costs a million dollars, I’d have to bribe you more than a million. So, the power of the rich is actually less under this system. And, of course, any court that got the reputation of discriminating in favor of millionaires against poor people would also presumably have the reputation of discriminating for billionaires against millionaires. So, the millionaires would not want to deal with it all of the time. They’d only want to deal with it when they’re dealing with people poorer, not people richer. The reputation effects — I don’t think this would be too popular an outfit.

And Properal adds:

In AnCap society, I would expect tort claims to be transferable. Poor people could get justice if they were wronged by selling their tort claims to capable prosecutors. The poor person might get compensated fairly quickly for an injustice done to them and the prosecutor would have an incentive to get as much restitution as he could, thus punishing the perpetrator. So there might be more of a deterrent to preying on the poor, and the poor would be more likely to collect restitution, in an AnCap society than in today’s society.

Back to Slate Star Codex.

But the main reason I want this tried far away from me is none of these. It’s just a general expectation that something will go wrong when we try a social system we’ve never tried before. I was very impressed to learn that very few people predicted, before the fact, that Communist countries would have terrible economies. Even the American 1950s opponents of Communism argued that okay, fine, Communist countries will probably outperform capitalist countries economically, but freedom is more important than mere wealth.

If people can’t figure out that Communism might sink the economy, I don’t trust them to figure out all of the things that might go wrong with anarcho-capitalism. Even if David Friedman replies with utterly convincing rebuttals to all of my ten points above, it’s going to be the eleventh point I didn’t think of that makes the system explode.

Fair enough.