Saturday, September 23, 2006

One of my favorite conversations asks whether individuals acting alone, in their own interests, will create a stronger social fabric than individuals, or governments, acting out of welfare or charity.

Sort of a Wisdom of the Crowds/Libertarian Mashup.

Hungary has a tax law called the "1% law" (written by a fantastic woman I met during the expansion of CBI in CEE). This law allows ordinary citizens to direct 1% of their income any place they like -- health care, social security, nonprofits. While the US tax system does allow individuals to direct a portion of their income to charity, and incentivizes us doing so by decreasing our taxable income based on donations, it never the less limits the end destination to those organizations classified as nonprofit organizations -- 501(c) 3 classified by the US government.

The Omidyar Network and Google are suggesting that this severely curtails people's opportunities to do good. Isn't ebay contributing to our social fabric by building trust and unleasing people's potential? Aren't green energies just as good for the economy and production as they are for the environment? Increasingly, for profits are showing the power to create tremendous good and, if ordinary citizens, wanted to support those efforts the way we support nonprofits, with the incentives to boot, shouldn't we be able?

So what about a system that enables us to direct a portion of our income where ever we, as individuals, see fit? Lets imagine we don't have a welfare state and it was with this system that we needed to fund the social systems we deemed relevant. The assumption is that we would each operate in our own self interest. I, for example would investing in health care, my own retirement, and education. I'm sure a number of other people of my income and age bracket would do the same. Others would invest in programs to accommodate child care and nutrition programs.

Would the spread of these interests result in each initiative getting the support it needs? By sheer buying power, my friends point out, the top of the pyramid would have more to invest than the bottom. So a system where all votes were equal vs. straight taxable income allocation might in fact enable people to cover their own needs.

If you could see where others were investing would this create more efficient allocation of each dollar? Would it decrease or increase the free rider problem? This type of market would inevitably be more efficient, and probably enable the cream of service providers to rise. Largely better than the government's existing system for determining which intiatives get the pork.

Would there still be some need for government protection? How about in defense -- an area that would most likely languish far from the top of immediate direct and personal needs? Would individuals americans be comfortable with a military power not unlike the Polish in WWII?

Its food for thought.

1 comment:

Anonymous said...

There are so many interesting issues/questions here, I'm overwhelmed with where to start. So, maybe I'll just make one comment and ask one additional question to keep the conversation rolling.

My comment: I'd take issue with your characterization of this issue as a wisdom of crowds/libertarian mashup. I think the basis for the wisdom of crowds is libertarianism and therefore teh two are integral rather than mashable. The wisdom of crowds (ie the wise answers derived from the input of a crowd of individuals) depends on each individual in that crowd acting in what he or she thinks is right/best based on the localized information that he/she has at hand. The Austrian school of Economics is the academic version of the wisdom of crowds and is typically aligned with libertarian politics. So, I think the "mashup" or conflict you're getting at with this excellent post is actually one between wisdom of crowds/libertarian on the one hand and central control/government on the other. (But, maybe I'm misunderstanding your intention.)

My questions:
* Does the diversity (cultural, professional, age, take your pick) of the population in question matter? For example, a relatively small group of Japanese Christians all of whom enjoy the arts and are in their 30s raising children get together in a neighborhood. They have to decide how to provide for themselves. One option is to impose a uniform 1% tax, use this money to hire (elect) a mayor and let the mayor decide what is necessary. Or they can choose the wisdom of crowds approach and each dedicate 1% of their income to what each thinks is important. My guess is that the outcomes of these two options wouldn't be that different.

Now take a country like the United States and poise the same hypothetical question. I think the outcomes would be very different.