One problem with applying this idea to the social contract is that a typical individual has very little say concerning the terms of the society in which he lives. We may be presented with a contract that requires the sacrifice of a lot of liberty without granting much in the way of benefits. Since living apart from society is such a difficult proposition, it is probably in the best interest of most people to consent to living under even the most dismal contract.
Compare our situation to that of a person who is set upon by an armed robber. If the thief offers you your life in exchange for all of your money, you should probably consent even though most people wouldn't really call it a beneficial agreement. The problem is that you don't have very much bargaining power.
Because the society we live in is so complex, the number of terms in our social contract is immense. Even if we don't like some of the terms, we generally have to consent to the whole because we have very little bargaining power. If a simple majority can continuously add terms to the contract we can eventually come to a point where the terms added due to lobbying from one interest group or another add up to a whole that takes a very significant portion of our freedom.
The fact is that whenever we add terms to the contract we limit everyone's freedom. If I consent to a new restriction in order to achieve some benefit, it isn't only my freedom that suffers. Freedom is stripped from all and benefits are distributed to a few.
For this reason I think it is prudent to have stricter standards for when we add things to the social contract. That is, we should hesitate before we raise taxes, criminalize behavior, or enforce civil regulations. What should our standard be?
I recently read a very interesting blog post that talked about how market failure should not be a sufficient condition for government intervention. Modern economic research has put a lot of effort into deciding when a free market will result an efficient outcome. Many people take this research and declare that whenever the market result is inefficient the government should step in. There are two problems with this: First, the existence of market failure by itself does not imply government success. In some cases we might be faced with problems that are inherently inefficient given the current state of society. Second, all government intervention comes at the cost of reduced freedom. Even if government intervention does increase efficiency, this benefit must be weighed against the loss of liberty.
As an example, consider the case of the market for narcotics. Let's suppose assume that the market is inefficient. Left to themselves, people will consume too many drugs because they are addictive and much of the harm is external (that is, consumption can harm people other than the user). But it should be obvious by now that the government is not doing a very good job of limiting either the supply or the demand for drugs. Plus, government intervention results in the growth of criminal gangs and the violence associated with them. It also results in a significant loss of liberty. This loss of liberty is reflected in two ways. Those who would use drugs responsibly are prevented from making that choice, and a lot of people are in prison for using or distributing them despite the law.
As a result of drug laws and countless other terms in our contract, the US has the highest incarceration rates in the world. (We have 5% of the world's population and 25% of the prisoners). We do have lower tax rates than most other countries, but not really by that much. (See this graph comparing our rates to other industrialized nations).
The fact is that even a "free" democratic society can become oppressive if the majority gradually keeps adding to the burden that individuals must live with. When we see a problem we can't do anything about by ourselves, government action is often the first thing that comes to mind. When a natural disaster hits, people hold the government responsible. When society faces an obesity "epidemic," people turn to the government.
Consider an interesting piece of research about soccer goalies. The best strategy for a goalkeeper to block a penalty kick is to remain in the center until they see where the ball is going. But most goalies commit to one side of the other because shots placed far enough to one side are impossible to block unless they pre-commit. The reason they commit is that they are more afraid of looking passive than jumping the wrong way.
People seem to be that way with regard to government as well. When there is doubt about the best way to approach a problem, law-makers and executives prefer to err on the side of doing something counterproductive. We don't trust each other to resolve our own problems as individuals, and we don't trust the market to work things out. So we get government involved without honestly answering the question of whether doing so is worth the cost.
Keeping all this in mind, I would like to develop a new standard for giving government new responsibilities, or adding new terms to the social contract. The standard should satisfy three principles:
- There must be a problem that cannot be efficiently resolved by individuals interacting in a free market.
- There must be compelling evidence that government can achieve a more efficient result.
- The efficiency benefits must be weighed against the loss of liberty.
Basically, the default should be no government intervention unless we are sure we need it, that it is going to work, and that the benefits are great enough to justify restricting everyone's liberty. The third part is particularly difficult to quantify. How can we compare economic benefits to loss of liberty? Or, as many progressives argue, what if the proposed efficiency of government redistribution provides more "positive liberty" (i.e., economic opportunity) for the poor than it takes from the rich? These are questions for another day.