Government and Smart Choices About Natural Disaster Risks

Libertarians like to argue that for most problems people make the best decisions for themselves because they have more knowledge about their own values, circumstances and options than anyone else and because they have productive incentives, so that forcing them to choose specific actions is bad. This is certainly true to an extent, but in some recurring cases, people have unproductive biases or have the poor information about their circumstances and options relative to others. For example, on the issue of natural disasters and insuring assets against damage, asset owners often have both limited knowledge and biases against buying appropriate insurance. To use the example of New Orleans, residents are unlikely to have good information about the risks they face from hurricanes, the costs and likelihood of a hurricane striking. In addition, people have a well known bias against events with small probabilities. When performing conscious or subconscious cost analysis, people tend to discount the importance of low probability events, which can be a serious problem if there are high cost but low probability events, so New Orleans residents will make less than good choices about insuring their homes and other assets against hurricanes.

What is the role of government in evaluating these risks and insuring against them? Producing information about certain common risks is surely a public good and one of the proper roles of government, but should government, as part its social contract, correct for well-known, widspread biases? On the issue of natural disasters this means forcing the purchase (through taxes) of insurance against low-probability, high-cost events.

Can Government Be Legitimate?

I ran across a great comment thread (here) on an old post at EconLog. The commenters got to discussing the ultimate legitimacy of government, and one post in particular by "James" got my attention. James beautifully captures the good arguments against the legitimacy of the state. He writes:

One reason to reject the concept of legitimate government is that there have been no good arguments to believe that one exists. Philosophers, in their attempts at justifying various states, have defined government in terms of what a government is entitled to do, or in terms of a set of positive attributes. To move from the first approach to claims of legitimacy is to presuppose one's intended conclusion. To move from the second approach to claims of legitimacy becomes an argument for any agency having that set of attributes to be entitled to engage in those behaviors reserved to governments, but the defenders of the state refuse to accept this conclusion.
Another is that even if there are legitimate governments, there is no way to verify that an agency claiming to be a legitimate government really is one. As an empirical issue, there is no way to determine if some group of merry tax collectors is a government because there is no such defining attribute as "government-ness." In practice, such decisions are made by assertion and backed up by force.
Another still is that whatever ethical theory underlies one's philosophy of law must be able to answer the question, "May a non-government entity become a government?" If not, then any government is illegitimate. If so, then this implies a universal right of secession rather than the universal duty of submission that every existing government claims.
Another is that the story of the social contract as told by the British empiricists cannot be distinguished emprically from the formation of a marauding gang with really great esprit de corps. Nor can one verify that the formation of a social contract ever took place. Even governments recognize this problem in their own courts, as I cannot expect to win if I sue you for a debt and simply assert the existence a social contract between you and me.
Yet another is the frequently held selective application of social contract theory regarding obligations to the state. As modern social contract theorists tell it, you enter a social contract by driving on government owned roads or partaking of other government services. Must an entity be a government prior to gaining the priviledge of forming social contracts the way that a government does? Is so, then governments could not have formed by social contract. If not, then even governments must submit to social contracts when, for example, an IRS agent drives on a privately paved road. But the statists who make the "when you drive on these roads..." arguments are never willing to accept this conclusion.

James makes numerous wonderful points, and his argument against the state as it exists now is ultimately solid. My criticism of his post is that he fails to think more deeply about the important questions that he brings up. He brings up both the failure of social contract to explain the modern state and the fact that any sort of government should be morally indistinguishable from any other sort of human institution, but he fails to take his reasoning further. He doesn't try to answer his own question, "May a non-government entity become a government?". The answer is in fact, 'yes'. If a body came together, and formed a literal contract that includes a provision for leaving the contract, a government, morally indistinguishable from a bowling league, could be formed. It is important to note that there aren't any legitimate governments today but, I tend to think that the moral harm done by modern states is relatively minor because their behaviour is in many important respects similar to what the behaviour of literal contract states would be, so I don't think this should be an important libertarian issue. I wish I could talk to James; I bet we would have some interesting discussions.

I'm writing an essay on this topic (I have been for a while), and I hope I can post a draft soon.

The Road to Voluntary Government

I'd like to talk a little bit about how I came to support voluntary government. This process started because I was thinking about intellectual property (IP). Like many libertarians I came to the conclusion that it is not an innate right to be able to own ideas. Even though the institution of intellectual property has gained huge acceptance in the real world, many people struggle to justify it ethically. Ideas are not scarce resources, you can distribute ideas without reducing your ability to consume them. It makes no moral sense to establish property rights over non-scarce resources and, it is immoral to prohibit someone from using their property in a way which does not violate your property. So I decided that I did not believe that ideas could be property, but IP still seemed vital to continuing prosperity, because ideas are public goods and if people did not reap the benefits from their investment into researching ideas, then they would have little incentive to do so. For example, the only reason software companies sink resources into writing code, is because they know they will have the exclusive right to sell the product of that code. So I was stumped for some time. It didn't seem right that something could be necessary and unethical at the same time.
Then I realized that people would be willing to come to a collective agreement to pay an inventor if they benefit from using their idea, because it is both ethical and beneficial to agree to pay for the use of public goods. From there I started thinking about other public goods like roads and defense, and how similar agreements can exist to fund those as well. My second realization was that these agreements are very much like government. It would be very possible to form government around a voluntary social contract.
Realizing that an agreement to form a government could exist made me realize something else, which should have bothered me before, but didn't. Strict classic libertarian government, who's only role is to protect private property rights, but which is not voluntary, must still collect taxes (can't fund police without taxes), and is still unethical because forced payment is no less ethical because it goes to the protection of property, the protection of property is a good like everything else.
This chain of reasoning is what set me along the road to realizing how fully ethical government could be established. This was particularly satisfying to me because traditionally as libertarians get more moderate (less anarchist), they become less rigorous about their reasoning, and it becomes easier for them to support non-libertarian ideas, but here I had become much more moderate and much more rigorous at the same time. I later told one of my friends that I was both moderate and rigorous about my libertarianism, and I got a very strange look from him; very satisfying.