Sunday, March 20, 2022

543. Institutional crowding

 The economic principle of diminishing returns says that as you accumulate more of something, say wealth, the utility of an addional unit decreases. You get saturated. An additional dollar can mean survival to a beggar, but means virtually nothing to a millionnaire.

Similar, but concerning the increasing cost of acquiring an additional unit, is the principle of EROI, Energy Return on Investment, applying for example to exploiting a natural resource. It says that as you are take out more, the cost of an additional unit increases, you need to put in increasing energy.

Here, I want to mention another variant, which I call ‘institutional crowding’, which concerns the increasing difficulty and cost of adding a regulation or law to an already large collection of them. It makes me think of a game of blocks I play on my smart phone, where one has to add additional irregular configurations of blocks into a limited space where you already added a number of such configurations. There is less and less fitting space to add an additional one. To proceed, there must also be the possibility of eliminating already added blocks.

The government of a liberal democracy feels pressed, to preserve votes in elections, in competition with especially populist parties, to acommodate needs and desires with new social benefits, subsidies or tax reductions to special interest groups. Also, to make a political career, parliamentarians and members of municipal councils need to profile themselves by initiating ever new regulations. But financial and bureaucratic capacity are limited, and with laws and regulations it is difficult to abolish already existing ones to make room for new regulations, because they are seen as acquired rights that may not be violated.

 This is one of several threats to liberal democracy, which cannot resort to dictates that an authoritarian regime allows itself. I am not pleading for less social security or fewer benevolent regulations, but for regulations that save on bureaucracy and institutional crowding.

A prime example of such regulations is that of a Universal Basic Iincome (UBI), for which I pleaded before, in this blog. Since it is unconditional, applying equally to all, not depending on work or wealth, it is not bothered by boundary conditions, who gets it and who not, which clog up the system and further a mentality of regulatory distrust and control.

Some say that a UBI of, say, some 1000 euros per month per person would cost too much, necessitating too high a tax rate, but this has not been analysed carefully enough. In available calculations, likely positive effects have not been taken into account, such as the impulse it would give to entrepreneurship, since in the risky times of setting up business, one can fall back on the UBI when things go wrong. One can say that taking out he risk of entrepreneurship, will produce more worthless initiatives, but enough risks remain, since the UBI is stil too low to satisfy anyone but the most frugal people, and there is the risk of unsuccessful effort and loss of time. Also, there would be savings in less cost of social arrangements and attendant bureaucracy, though not all existing arrangements can be abolished. One can also think of other taxes than on labour, such as on the use of robots and highest wealth. Tax on the production of robots might chase their production outb of the country, but the robots used in the country cannot flee.         

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