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The Prisoner’s Dilemma and Minarchy

This morning, Karl Smith had a great post on the link between the prisoner’s dilemma and debt. Below is the response I left on his post. I don’t normally find myself defending libertarians, and in truth I think few libertarians have thought deeply about these issues, but the movement has many smart deep people who are not going to make these basic errors.

Great example. It reminds me of a related point that my advisor clued me in on a long time ago. The basic idea is that all trade is a prisoner’s dilemma of sorts since the purchaser doesn’t hand over money at the precise instant that the seller hands over product, whoever hands over first the other person will take the goods and run. Social pressure such as trust and reputation only get you so far, since they have extreme informational requirements, especially as society becomes larger. So you need a commitment device to prevent people from taking the money and running.

This is what we call a contract, but contracts have the same problem. You solve this problem with the coercive power of the govt, which enforces the contracts (and of course debt is just one example of such a contract). But this brings up my real point. Libertarians do actually believe in enforcing contracts. I don’t agree with them in general, but this is why they talk about minarchy, not anarchy. As for government debt specifically, I think they would say that this argument doesn’t imply a particular level for government debt and a minarchy shouldn’t need to run a large debt.

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