Does government intervention create its own externality (or “neighborhood influence”)? Many economists think so and the question seems particularly important in the current storm of degeneration. Sixty years ago, Milton Friedman defended the idea in his influential book Capitalism and freedom. Friedman, a mainstream neoclassical economist and moderate classical liberal, writes (p. 32):
No hard and fast line suggests how far it is appropriate to use government to collectively accomplish what is difficult or impossible for us to accomplish separately from our policies through rigorous voluntary exchanges. In any particular case of proposed intervention, we must create a balance sheet, listing the advantages and disadvantages separately. Our policies tell us which items should be placed on one side and which items should be placed on the other side and they give us some basis for giving importance to different items. In particular, we always want to move towards accountability for any proposed government intervention, its surrounding impact on the threat to independence, and to give enough weight to this impact. Like other items, how much it should weigh depends on the situation. If, for example, existing government intervention is secondary, we will associate a small weight with the negative effects of additional government intervention.
This is an important reason why many earlier liberals like Henry Simmons wrote at a time when the government was small by today’s standards, willing to conduct government activities that today’s liberals will no longer accept that the government has grown so much.
Technically, externality is usually modeled Unintentional Impact of activities conducted for other purposes. Otherwise, imposing indirect costs or benefits on someone would be externality; Almost all activities fall into that category. Following this it seems that general government intervention should not be counted as a positive or negative externalization, as it is clearly designed to create benefits for some groups and impose corresponding costs on others. However, if it has an indirect effect on everyone’s freedom, it can be considered as creating an outward appearance of freedom, as Friedman suggests. (In this context, a government intervention aimed at increasing government power and reducing individual freedom will not create the outward appearance of freedom, but will only directly cost independence.)
Increasing government interference, in addition to increasing independence externality, also increases their growth rate, as the above Friedman criteria seem to? For any individual, the value of a given intervention in terms of his personal freedom would be higher than the initial level of government intervention and power. One reason may be that, at the higher threshold of power, an additional intervention to give the government irresistible power and severely curtail the freedoms of the subjects (or “citizens”) would be combined with existing controls. If government surveillance is widespread, for example, a new public morality or lifestyle law may be used to harass unpopular minorities. Another reason is that the less a person’s freedom, the more valuable a person will find.
With the exception of one, note how the serious problem of cost-benefit analysis can be avoided in other cases – which have no scientific basis for weighing the benefits of some as opposed to the costs imposed on others – we should formulate the problem of externalities of freedom. James Buchanan: Each person estimates his or her own costs and benefits from a given intervention and can be assumed to have consent. Only if, for him, The latter is larger than the former. The only assumption here is that, equal to everything else, no person wants to be more oppressed; Persecution is not a cost, a beneficial or neutral condition. If some people choose to be slaves merely for the pleasure of slavery, the outward appearance of freedom is not unequivocally positive or negative. Then the problem becomes more complicated.
Considering only the outwardness of negative freedom, Friedman’s warning is valid: the higher the level of government intervention, the greater the outwardness of the negative freedom of the new proposed intervention. I suggest that it is not easy today to find any government intervention — or at least any “net” intervention that can survive Friedman’s standards.