Transaction costs

Noah seems to argue that taking property rights to extremes and privatizing everything is the libertarian dream, will increase efficiency, but will also introduce onerous monetary and psychological transaction costs and lead to a feeling of less freedom, rather than the desired increase. This seems like a straw man to me. No economist will argue for such extreme levels of privatization precisely because it does not increase efficiency. We know that in practice, public goods and pseudo-public goods (public trash cans and benches, parks, etc.) tend to be more efficiently provisioned by government. Largely because of the difficulty of making capital allocation decisions at such a high frequency and for such small amounts as would be required if these were provided for privately (assuming current technology).

However, we can imagine a world where our usage of semi-public goods is metered unobtrusively. In exchange for paying less in income taxes, we would be taxed proportional to our usage of roads (already in testing in Netherlands), parks and sidewalks just as we now pay for water and electricity (yes these are provided by pseudo-private for-profit institutions, but the structure and regulation of the industries results in a market that mimics government-provided utilities). If we can have a sufficiently transparent and trustworthy infrastructure to meter our usage of such things, we’d have no problem paying for them one time at the end of the year. To eliminate the remaining potential for psychological costs when determining whether to allocate capital to such small privileges as walking on the sidewalk, we can simply make these taxes/costs steeply progressive (since the end of year bill will come with knowledge of the user’s wealth). This would eliminate most of the problems cited by Noah and I believe is coming soon to first world nations.

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