Aretae would reframe my recent post about complex systems as being all about how feedback systems fail to work in bureaucratic systems. I think we can go one step further:
I suppose the more subtle point, as Coase pointed out, is that there’s a trade-off between small, atomic, market actors and large, conglomerated, bureaucratic firms.As long as the greater context is a competitive market, firms will face pressure to seek the right size — but government agencies certainly won’t, and big firms are awfully good at wielding political power to grant themselves market power.
Aretae responds that left-libertarians find corporations almost as problematic as governments, because corporations are the primary actors that move government to mess up the economy, and that governments mess up the economy by increasing transaction costs — but I don’t quite agree:
I think it’s left-libertarian to see corporations as intrinsically problematic — because they’re big, bureaucratic, hierarchical, full of suits, etc.
I think it’s right-libertarian to see corporations as problematic in the presence of government — because they use government to their own ends, under the guise of doing what’s best for the economy.
I suppose these things are always a bit fuzzy though. Rand, for instance, combines Romantic “fight the power” yearning with pro-capitalist reasoning in favor of producers over moochers and looters.
Now, is the chief problem of government that it increases transaction costs? I’ll have to think about that. Certainly regulatory “red tape” increases the cost of doing business. So do outright taxes, of course, which tend to increase marginal costs — not good for economic activity either.
Interestingly, when the State was really just a bunch of landlords, taxes were fairly efficient — charging rent for land is easy to do and doesn’t reduce the supply of land much.