Suppose there is some Grand Project that several people want funded. They have a few basic ways of doing this. They could:
- Fund the Grand Project themselves, from money they have on hand.
- Try to persuade more and more people to support the Project.
- Take out a loan to fund the Grand Project
- Attract investors to fund Grand Project, offering to pay them back a percentage of any eventual profits.
- Invite a private party to fully fund the Grand Project, which they would then make available to others on a rental or lease or per-use or some other basis, amortizing the cost.
- Try a different business model, maybe give big sponsors of the Grand Project naming rights, or offer them space for advertising.
I’m sure you can think of several more. That is the wonderful thing about the private sector, there are so many ways to fund the things that people truly want.
The harder task is funding the things that people don’t want. Let’s take the war in Iraq. How many Americans really wanted that? At the time? A decade later? 20 years later? Today? I’m sure it has very little support. But there it is, funded. Something like that could not be funded by any market-based mechanisms. It can only be funded via taxation. This is not because it the war is expensive. It is not because of free rider or public goods concerns. It is because it is unpopular. Taxation is the only means to fund things that no one in their right mind would fund with their own money. The fact that there is no alternative to this kind of funding, in a libertarian society, is a good thing. It is a feature, not a bug.
Now, let’s imagine some intermediate Grand Project, something that many people would support with their own money, say at a 70% level. With taxation you would be able to fund it at 100%. Without taxation it would be funded at 70%. You would still have the Grand Project, but it would be a little bit less grand. Or the supporters would need to sell their idea a bit harder, trying harder to persuade citizens, and not just politicians, that it is a good idea.
I think most people understand and appreciate the need for a defensive military. They probably understand less why we still have active troops still in Germany and Japan and in 148 other countries. If the military were funded by voluntary payments, the emphasis would be on defense, and not on being the world’s policeman. Is this a bad thing? Some might disagree. Let them pay for it then, I say. The rest of us would fund a defensive military.
What about social entitlements? I’m sure there is wide support for ensuring the destitute, beset by accidents or tragedy, are not left to die on the streets. Many think that government is the solution here. Many others think private charity should play a major role. Let them vote with their pocketbooks and express their priorities that way. I’m sure when this is done, help for the most needy will be funded at a higher level than, say, corporate welfare, which would have almost no support. Is this a bad thing? I don’t think so.
So that’s the essential trade-off. In return for some popular projects not being funded 100% by compulsory taxation, and for proponents of such projects needing to work harder to persuade the people actually paying, 100% of all the horrendous things that taxation funds, things that only make sense when someone else pays for it, would disappear. All of it.
I think that is a great trade-off. Arguably, with the money left over, the 70% that want to fund something popular might be able to fund it to 100% or even 110% and still be ahead.
Of course, this is all like garlic and a crucifix to the special interests vampires who survive only by drinking the blood of the living.