Theme: Externalities

WHAT GOVERNMENTS DO: (Costs)

Oh. So at eight o’clock in the morning, before I’ve finished my first cup of coffee, you want me to answer a really hard question? lol 😉

Here:

Effectively, all governments maximize the use of existing technology to monitor and regulate the behavior of all citizens the the point of diminishing returns and then into burdensome costs that reverse the utility of centralizing costs (government) for the purpose of suppressing the hierarchy and network of rents (frictions) that occur in its absence.

This is a universal law of government behavior. Governments suppress the hierarchy of rents (unearned takings on the work of others) in exchange for producing monetary and trade velocity, reducing transaction and risk costs (and the many other costs).

It’s this reduction in costs that makes economies capable of producing trust in a complex division of labor over longer and more complex production cycles.

It’s hard for we humans to think in the ‘via negativa’ like this – but we can understand that we can think in gaining knowledge (positiva) or removing ignorance (negativa). The same is true in economies. We can think in terms of facilitating trust and cooperation or removing costs that impeded trust and cooperation.

Just for yucks, here is a hierarchical list of costs that people, polities, and governments can seek to reduce in order to create prosperity:

1. Transaction Costs (Immediate, Perceptible)
Costs of negotiating, executing, and enforcing agreements. These include direct expenses like fees and the time spent on bargaining.
2. Opportunity Costs (Immediate, Perceptible)
The value of the next best alternative foregone when making a decision. These are often felt as a direct trade-off in resource allocation.
3. Information Costs
Costs of obtaining, processing, and verifying necessary information for decision-making, including research and communication overhead.
4. Coordination Costs
Costs of aligning efforts, goals, and activities among individuals or organizations to ensure smooth execution.
5. Compliance and Regulatory Costs
Costs associated with meeting legal, regulatory, or internal policy requirements, such as audits, documentation, or legal counsel.
6. Switching Costs
Costs incurred when changing suppliers, technologies, or operational dependencies. These can be tangible (training, setup) or intangible (loss of integration benefits).
7. Agency Costs
Costs arising from conflicts of interest between principals and agents, including monitoring, incentivizing, or resolving misaligned objectives.
8. Adaptation Costs
Costs of adjusting operations, strategies, or resources in response to external changes such as market shifts, regulations, or technological advancements.
9. Sunk Costs
Costs that have already been incurred and cannot be recovered. Though economically irrelevant for future decisions, they often psychologically influence actors.
10. Redundancy and Buffer Costs
Costs of maintaining excess capacity or resources as insurance against uncertainty or risk.
11. Complexity Costs
Costs that arise from managing increasingly intricate systems or processes, leading to inefficiencies and reduced agility.
12. Intertemporal Costs
Costs resulting from decisions that affect future states, such as delayed investment returns or the erosion of future options due to present commitments.
13. Externality Costs
Costs or benefits imposed on third parties due to an economic activity, often unnoticed or unaccounted for by the primary actors.
14. Cultural and Social Capital Costs (Remote, Imperceptible)
Costs associated with building, maintaining, or repairing trust, reputation, and relationships, which are crucial but often difficult to quantify or perceive immediately.

Cheers
CD

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