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What is really the best way for a government to decide policy?
Imagine you’re the absolute monarch of a country in an alternate world that’s somewhat similar to 18th century Europe. You have just inherited the throne from your father who passed away, and have the authority to implement whatever changes you want. The peasants and the nobles and the military are all feeling happy after a couple decades of good harvests and no plague so there will not be any resistance to what’s seen as your divine mandate to rule, for the short term at least.
For the past couple centuries your country has been Mercantilist, with policies like heavy tariffs and state granted monopolies, both to raise revenue for the state and to protect domestic industry against your international rivals. There are also policies like price caps on bread to help the people and make sure they don’t starve. The state spends most of its revenue on its military for national defense, but also spends a substantial fraction on the construction of roads, plumbing, and grand monuments. Lots of people have complaints about poor service and high prices from the monopolies, and get upset at occasional bread shortages. A lot of people would like to participate in the skilled trades like smithing or woodworking but because there’s such limited economic activity and because guilds have a monopoly on such positions most people are subsistence farmers. Overall people are mostly content with the system because they don’t know anything else and with the recent decades being fairly fortunate there’s never been a major failure of the system. All the other significant countries in the world that you know of follow the same model, and you don’t have any good or reliable records of how any historical systems might’ve worked.
You’re an ethical ruler who wants the best for your people, and are considering how to go about some changes to make things better. A couple of scholars have come to beseech you to make major changes to the system, based on their theoretical ideas that they’ve come to from reasoning on first principles. Since there are no records of alternative systems to do empirical research on, all their ideas are purely theoretical. One proposes what we’d call laissez-faire economics and libertarianism, to dismantle the state monopolies and tariffs and price caps and guild system, and to keep only a minimal sales tax necessary to fund a military for national defense and maybe a few other issues of national interest such as road building and education. They say that the people exercising their self-interest will result in more of what’s needed most, and distribute goods and services to those who need them the most. It will also result in competition that ensures the cream rises to the top. It all sounds very convincing and with no academic background yourself, it sounds very plausible it would make life much better.
The other scholar proposes something very similar to what we’d call socialism, saying that the nobles and wealthy merchants are exploiting the working classes. This scholar tells you about the labour theory of value, that all added value beyond what’s found in the natural world comes from people labouring to turn natural resources into goods people want, or labouring to provide services. That nobles and wealthy merchants only have such large amounts of wealth by exploiting labour and skimming that value by charging more when selling the goods and services than they pay their labour. The academic tells you that all workers should own their means of production, such that everyone working in a guild workshop should mutually own the workshop and divide all profits between themselves, and the same for all peasants working a piece of farmland, and the same for all other economic activity. They say that not only will this be more just, giving workers the fruits of their own labour instead of it being drained away by a parasitic upper class, it will also greatly increase economic productivity because people will be focused on producing what’s really needed and production can be centrally organized based on what’s rationally needed instead of what’s merely profitable for the parasitic class. They say that without competing firms each wasting resources on secret research or trying to out-advertise each other, resources can be cooperatively spent on stuff that is actually useful to society. This academic also sounds like their theory will very plausibly make life better for everyone.
How do you decide which policy to undertake? Today, outside the hypothetical and knowing what I know now from empirical results of stuff like the USSR’s failure, I would strongly support the libertarian side if I was the monarch. Even if you’re a socialist and believe the empirical record shows the opposite for whatever reason, I think this thought experiment still applies, since you have the same problem of trying to figure out how to make the government arrive at the correct decision. How do you decide on such a big decision with such limited evidence of what’s actually better? If you just stick with Chesterton’s Fence and don’t make any big change, you’re stuck with Mercantilism, which is arguably worse than either the alternatives. If you embrace democracy and let the people decide, either in a direct democracy referendum or with representatives in a Congress or Parliament, they will quite plausibly make the wrong decision, and the people will make life worse for themselves. If your outsource your decision to “the experts” and try to be meritocratic, it’s also quite plausible “the experts” will be just straight wrong, since experts have their own biases and limited evidence to work from. I’m a fan of prediction markets and futarchy, but those can come to the wrong decision too- if they say one option has a 90% of being better, then you could always land on the 10% chance, or the people predicting could just be miscalibrated, or you could have asked it the wrong question like “What option will raise GDP more” instead of “What option will raise GDP per capita more”.
I think you’d have to be willing to run active experiments in governance and economic structure to determine the best outcomes. Like you assign 1/3 of the country to be libertarian, 1/3 to be socialist, and 1/3 to stay mercantilist, and you wait some period of time to see which turns out the best. But that has its own issues, namely that you’re quite possibly ruining many people’s livelihoods for the sake of an experiment. It’d be very tempting to just go ahead and give everyone your best guess of what’s the best outcome. But I think that would be wrong, because it would have such extreme consequences if you guess wrong. Even just running the national experiment for a short period wouldn’t be enough, because it may take some years for something like socialism to show its cracks. People under socialism may continue to work hard for some years because they’ve always been used to working hard, it may be some years before technology and consumer preference shifts in a way a central planner can’t predict, they may be able to cover gaps with debt financing for years only to enter a crisis when they enter a downturn and can’t get anymore loans. There could be a similar situation where libertarianism appears to go strong for several years before collapsing into corruption. Or perhaps one or both systems would need to take some time to ramp up, and for the first few years appear to have worse outcomes than Mercantilism.
I think, both to be morally just and in order to view people’s true preferences, you need to always ensure freedom of movement. Beyond that, you should divide the country into portions, as fairly as you can, and run different theoretical political/economic models in the different portions. If one model appears to be doing better, perhaps expand its borders, but don’t shut down weaker models entirely, since they might just need time to ramp up, and any truly bad consequences are mitigated by people being always allowed to move away if they need to. Which models to actually use should be decided using prediction markets- ensuring that anyone making those decisions has some skin in the game, and that if they consistently make good or bad predictions about outcomes, that record is tracked. The invention of models can be left to academics, or anyone else, theorizing, and if it gets enough backers then those backers can bet it up on the prediction market as worth trying. What exact question should be used to measure success I'm not sure of, but probably something could be come up with that captures the concept of "Is this theoretical system worth trying out".
Prediction market FAQ for anyone unfamiliar with the concept: https://www.astralcodexten.com/p/prediction-market-faq
To have virtuous and wise people doing the deciding, and public-spirited and moderate people doing the implementing. Personnel is policy, and all the procedural gilding in the world won't save a government made of the petty, venal, and stupid.
The two problems I see there is a) figuring out who exactly is virtuous and wise, and b) protecting the state from the virtuous and wise making well intentioned mistakes. As I laid out, something like socialism can seem quite appealing even to a wise and virtuous person, but have disastrous consequences.
There's a reason that "to err is human" is a truism. People aren't omniscient, and are going to make mistakes. You don't escape that by delegating to a committee, or prediction market. So long as people are involved, there are going to be mistakes and errors.
Well sure, but some systems make more mistakes than others. A prediction market as I view it is ultimately just a systematic way to keep track of who makes errors the most and who makes them the least, so you can put the people who make them the least into power.
Calling something like the USSR or Nazi Germany just a regular human mistake isn't an acceptable conclusion to me. I want a systemized method of how we can go about designing better governance and economic systems, since I don't think anyone's completely happy with any systems anywhere, without risking making a USSR.
Goodhart's law. You're only optimizing for the ability to game a prediction market, not the ability to be a wise ruler.
Why not? Totalitarianism and militarism are pretty common human modes of social organization. Look around the world and you'll find more dictators than not, and even putatively democratic countries can sure be repressive when they want to be (e.g. UK speech offenses, Canadian asset-freezing the trucker protests, etc). There's also a lot of military aggression even today (it just tends to take the form of gangs or paramilitaries in third world countries rather than stomping around with flags and tanks, but even there see Russia/Ukraine, Armenia/Azerbaijan, Saudi/Yemen, China/India/Pakistan's periodic kerfuffles, North & South Korea, any number of insurgencies in Africa and SE Asia, etc.) Totalitarianism and militarism are even more common if you look back more than 70 years in the past. Same for genocides. The Nazis only stand out because they came along right when mass media was first becoming a thing. The Soviets too only stand out because they were a geopolitical rival for half a century.
I think it's harder to game a prediction market than to game any other method of selecting wise rulers.
I believe that if a competent absolute ruler implemented my proposed system, like Napoleon at his height did so instead of invading Russia, governmental and economic systems like socialism, communism, fascism, and liberterianism could've been tested without the genocide. And that'd have been a much better outcome for humanity as a whole. Today, I'd prefer if we could set up lots of charter cities that implement different ideologies, each mostly free from state influence, to see which methods are most succesful.
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What if the USSR and Nazi Germany are, in fact, what normal human mistakes look like when people attempt to apply systematized methods of designing "better governance and economic systems"?
Perhaps. But I don't think so.
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