20 August 2006

A big sign to date that we are moving towards a market-state

The IRS privatizes debt collection.

An excellent assessment of what this development of affairs portends:

It looks like the US implementation of the market-state concept is going to end up relatively badly implemented. What does that mean? Here's what a poorly executed US market-state look like in 15 years: A largely privatized state. Lots of crony capitalism due to a massively corrupted government. Huge disparities in wealth. Oodles of paramilitaries (think in terms of private security firms replacing the thousands of SWAT teams that have proliferated over the last couple of years). Radical increases in poverty. Urban decay on a grand scale. Immigration out of control. Wealth flight (to the Caymans).

The keys to making this work are ruthless efficiency (likely through extremely competitive marketplaces), incorruptibility, fairness (to a fault), transparency, platforms, and viable ecosystems. Anything less and it breaks (fragments) due to: your opportunity is at the expense of my opportunity...

And here's an interesting take on the matter from the Freakonomics crew:

…“The private debt collection program,” Johnston writes, “is expected to bring in $1.4 billion over 10 years, with the collection agencies keeping about $330 million of that, or 22 to 24 cents on the dollar.”

Maybe that seems like too big a cut to surrender. And maybe people will be worried about the collection agencies having access to their financial records (a concern that Johnston addresses in the Times article). But what’s most striking to me is that the I.R.S. knows who owes the money, and knows where to get it, but can’t afford to collect it itself because it is understaffed. So it has to hire someone else to do it, at a stiff price.

The I.R.S. admits that external collection is far more expensive than internal collection. Johnston cites current I.R.S. commissioner Mark Everson as saying so, as well as former commissioner Charles O. Rossotti, who told Congress that if the I.R.S. hired more agents, it “could collect more than $9 billion each year and spend only $296 million—or about three cents on the dollar—to do so,” according to Johnston.


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