Wow. Fame at last.

The shape of the graph you have clearly, but the reason for its shape could use a bit more clarification. It is essentially a matter of knowledge. Markets enable knowledge to be found. Price signals enable lots of people to discover what punters want, and it is this knowledge that the politicians begin their reign by making big use of. As a result, lots of punters get what they knew they wanted, but just had to pay less for it. This applies both to producers and consumers.

Although, whether this is a straightforward improvement for all concerned (such as the millions of taxpayers who together pay for this massive improvement for a few thousand) is open to doubt, but it definitely is improvement for the few thousand.

But then, the knowledge flow supplied by price signals gradually dries up, and eventually the government operation stops doing anything that anyone wants except the people in the government operation and in due course not even they. That's an exaggeration, but only somewhat. By the end of a truly awful nationalised industry, nobody has any clue about what constitutes an improvement. The only result is that money, more and more of it, gets spent.

The other application of the hockey stick curve is that when a market truly opens up, you have an equal and opposite tendency. A new market is chaotic, and (and this is the point) ignorant. People don't, e.g., know how to spot cowboy operators, or bad products made in all sincerity but badly. Ignorance and foolishness abounds, and down goes the graph of achievement. But then, if this really is a true market, things bottom out and start to improve and in the longer run the result is a market that is orders of magnitude better than the government could ever have managed.

This helps to explain the (to many libertarians) baffling popularity of statism and baffling unpopularity of markets. In the short run, for those in the immediate vicinity of the decision, state action really can be better and markets really can be very bad. And people with problems (regular people who get active in politics always have problems) don't have time to endure short run chaos so that they can later benefit from longer term excellence. So even if people fully understand the long term benefits of markets, they may still oppose them because of the short term cost.

However, often people find themselves living in the long term decline phase of government activity and then, even though markets will not immediately improve things, they will still favour them because their only choice is more chaos now and even more chaos later (government) and more chaos now and the prospect of improvement later (market). The graph of goodness is going down NOW so fast that even the initial further downward movement of a new market is worth living with, because long term benefit is all there is in the way of good future news.

That wasn't a comment, so much as a submission to the Libertarian Alliance Economic Notes series. Nevertheless I am grateful to Patrick for having stirred me into lashing down a first approximation to it that others can finally read. Maybe I should copy and paste it into Samizdata or something.

What a great post! I especially liked your comment:

And people with problems (regular people who get active in politics always have problems) don't have time to endure short run chaos so that they can later benefit from longer term excellence