February 21, 2012 columns

Falsifying Government

Samples discusses J.C. Lester’s conjecture that liberty is compatible with welfare.

I am delighted that J.C. Lester is blogging at Libertarianism.org. I have long thought that libertarians should pay more attention to Karl Popper. Lester makes the case for my intuition in his book, Escape from Leviathan.

In this post, I want to pursue two paths, one that follows Lester’s earlier work and one that explores some thoughts suggested by his work.

Lester argues that the conjecture that liberty is compatible with welfare (or other cardinal values) has not been falsified. He defends the thesis against common efforts to falsify it. If the “compatibility thesis” has not been falsified, he argues, we should not prefer coercion over liberty.

Like a good Popperian, Lester invites everyone to falsify his central conjecture.  He will not lack attempts. A whole subfield of economics—general welfare economics—seeks to show that economic liberty leads to suboptimal outcomes for welfare. I pursue here one case that strikes me as difficult.

Consider the usual case of pollution. Free exchange between two parties leads to negative effects on a third party, effects that are not captured in the prices present in the original exchange. Ronald Coase found a libertarian way out of this problem: if the parties are willing to bargain, assign the rights as you wish, and the parties can still achieve the overall welfare (although the rights assignment matters a lot to the post-bargaining distribution of wealth). But once there are many, many third parties affected by exchanges, the transaction costs of bargaining may preclude Coasean deals. We are back to a world of negative externalities that are not properly priced. We end up with distorted markets and a suboptimal state of welfare.

This line of argument, if it withstands criticism, would cast doubt on the compatibility thesis. But the argument might be extended. In the case outlined above, many imagine that the state could actually get prices correct by imposing taxes on the polluter thereby using force in service to welfare.

At this point, the burden of proof has shifted: the advocate of the state has made a conjecture subject to falsification. If the conjecture is falsified (by robust evidence of government failure, for example), the compatibility theory may be restored. Surely this is a common result: the case against the compatibility of liberty and welfare will often involve asserting that government can improve outcomes in fact as well as in theory.

In this way, Lester points us toward an important implication of critical rationalism. Policymaking by governments is always a conjecture subject to falsification. In more prosaic terms, we ought to take the evaluation of programs more seriously. It is true that Congress often funds evaluation of policies, but I think these studies are often done poorly or ignored. A proper evaluation of program evaluations would itself be welcome; we simply do not know much here. We surely should not accept the conjecture that the professed goals of a government program are in fact what the program accomplishes.

I am inclined to think that a policy or program that fails to reach its goals should be viewed as a conjecture that has been falsified. Does that conclusion follow? After all, a proponent of a failed program/conjecture could simply say we did not spend enough, the program will work with small changes, or we did not wait long enough for its effects. None of these responses violate critical rationalism. Indeed, they suggest additional testing. Still, at some point, a program will exhaust its alternatives and become falsified (and publicly seen as a failure). Perhaps something like this happened with Aid to Families with Dependent Children in the United States from 1936 to 1996.

Lester is right to join philosophy and social science. But I believe his defense of the compatibility thesis implies that government actions are an ongoing series of conjectures subject to falsification. Such testing, if taken seriously, would offer a another path to a more limited government.