Sunday, September 19, 2010

The Pirate Ship of State

Ahoy, me maties! Another Talk Like a Pirate Day is upon us, so throw back a noggin of grog as we plot how best to rid our ship of state of the of bilge rats infesting Washington.

I wish I could keep going with the pirate lingo, but I can't, so I wont.

Over a year ago, Russ Roberts of CafeHayek posted an EconTalk podcast (listen to the mp3) on the economics of piracy. Roberts interviewed Peter Leeson about his book The Invisible Hook: The Hidden Economics of Pirates. Like modern governments, pirate ships operated with written codes that outlined the rules and laws of the ship. They also had democratic processes for choosing leaders. What I found most interesting was the contractual arrangement between each pirate crewman and the ship's leadership.

In a way, these contracts created something like a company and distributed shares of the loot among the employees—the crewmen and officers of the pirate ship. These contracts also spelled out in advance how many shares the captain would get as well as the shares given to other officers and crewmen. Additional shares were awarded for bravery (being the first to board a hostile ship).

This seems like a better way to pay government employees than what we're currently doing.

Think of the government's tax revenues as being the loot gathered by our pirate ship of state. Instead of getting a salary or a wage, each government employee would be allotted a number of shares. The guy working in the mail room might only get a few shares while a the head of the Department of Education would get a lot. At the end of each month or quarter or whatever, the government totals its revenue, pays any bills that are due, tallies all the outstanding shares, divides the revenue minus the bills due by the outstanding shares, and then pays each employee for each share that employee "owns".

Avast! It's the practical end of deficit spending!

It would also be a pay cut for employees of governments that deficit spend.

Until those employees started firing some of their peers. The incentive to grow government payrolls would change into a preference to shrink them since fewer share holders would mean larger payments to the shareholders that remain. This would create a bias toward efficiency.

Government employees would more carefully scrutinize government spending. If you're city council employed a part-time lawyer to the tune of $200,000, you'd have an incentive to investigate why. Similarly, with an incentive to maximize tax revenue, government employees might actually advocate for the elimination of departments that do not add value as well as adjustments to tax rates and tax policies.

Perhaps such radical reform is not likely, but it's still a worthy goal.

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