It’s worth saving at a profit.

Next week Patri Friedman will speak at the University of Colorado about seasteading that is, creating sovereign floating cities at sea. Such ventures have been tried before, and failed. Yet, Patri is well informed, and credentialed, in economics, history, business, and engineering, and seems to have thought this plan out quite well. Last night I listed to Patri’s speech given at Freedom Fest ’04. I’ve heard government functions discussed in economic terms before, most notably by his father, David Friedman, and Randy Barnett, but Patri explained it so simply and succinctly, it just blew me away:

I think many libertarians have the intuition that if we can just communicate our ideals passionately and effectively, we can reverse this trend. While this is romantic, I really don’t think its true. When you think through the logic of why government grows, you realize that it is the natural behavior of a system with certain characteristics. Those characteristics mainly have to do with the incentives facing individuals, not the political philosophy they believe in. Spreading our philosophy is worthwhile, but rhetoric is not enough.One of the basic tenets of economics is that people respond to changes in incentives. The problem with government is a problem of incentives, and the solution is to change them. One of the most powerful ways to change incentives is through technology, and it turns out that the technology of floating cities will dramatically change the incentives facing governments. Let’s see how.

Think of government as an industry. It has two main features that make it uncompetitive. First, the cost of switching providers is very high. You have to leave your job, sell your house, pack your possessions, leave your friends and family, apply for new citizenship, get a job, buy a house, etc. As some of you probably know firsthand, it’s colossal. This dramatically reduces market feedback. The difference to an individual between two governments must be higher than this huge cost in order to make it worthwhile to move. So it’s natural for governments to exploit their current customer base, rather than innovating to try to keep them.

Second, government has a huge barrier to entry. Even something like designing a brand-new operating system seems almost easy compared to creating a new government. Consider the current situation in Iraq as an example of the tremendous difficulty and expense of regime change. You can’t just start fresh on land because all land is claimed by some existing country. “Give me liberty or give me death” is an effective way of getting land – land that’s wide as your shoulders, as long as you are tall, and six feet deep. Since the barrier to entry is high, there are few firms, which again limits competition.

Taken together, we can see that government is an uncompetitive industry, so is no surprise that it performs so poorly.

Now think about how floating cities change these factors. The barrier to entry for the governing market is much lower, because Mark Twain’s famous line “Buy land they’ve stopped making it” becomes false. We can build new territory in unoccupied areas instead of fighting for the currently fixed supply. Nor do you need to acquire a large, contiguous territory at once. It can be built piece by piece as funds and interest become available.

Wow. Typically people think of the marketplace operating “within” governments (I’ve written about this), and the view Patri presented above reverses this relationship.

This is quite inspiring to me, as earlier in the day, while writing a paper on nanotechnology policy, I wondered if a career being a policy wonk would really be fulfilling. How could I know if I made a difference? Since the paper is really about government and market regulations intended to protect occupation, consumer, and environmental health and safety, I’d been reading much of W. Kip Viscusi‘s work, and wondered if, after so many books and papers, he knows he’s made a positive difference.

In the Machinary of Freedom, David Friedman quoted H.L. Hunt: “If this country is worth saving, it’s worth saving at a profit.”

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