Imagine a situation with two alternatives, and two people or groups that have to choose which alternative to pick. For reasons that will soon become obvious, we will call one of them the "right thing" and the other one the "wrong thing." In this hypothetical situation, that's not a moral or arbitrary decision, because here's how it works: if they both do the right thing, they both win. If they both do the wrong thing, they both lose. But if only one of them does the right thing, the one who does the wrong thing wins big. Too complex? Call it "playing by the rules" or "cheating." If both parties play by the rules, the outcome of the game is determined by their relative skill and by chance. If both of them cheat, the outcome of the game probably isn't any different, but now both players have a reputation as cheaters and nobody wants to deal with them, the whole game gets a reputation as being crooked. But if only one of them cheats, he wins for sure, and the other guy loses for sure.

Some of you are feeling insulted that I had to offer this example, because it's very old news. But it's very old news that not everybody has heard, so it's worth repeating, in as many ways as possible, because solving the mathematics of this really was one of the five or six most important scientific discoveries of the 20th century. As most of you know, it's (perhaps unfortunately) called The Prisoner's Dilemma, and Wikipedia has a very good summary article on it that's worth reading if any of this is new to you. But for now, take my word for it, and you can check up on me later if you like, but even if you can't think of any examples right off hand, it turns out that there are lots of situations in real life that are accurately modeled by one form or another of The Prisoner's Dilemma.

And I bring this up because it is, in fact, the solid mathematical and scientific justification for almost everything about my politics. If there's something that if everybody does it, we all lose, but if anybody does it, everybody has to do it or lose? Then it's in everybody's best interest that we have some as fair as possible, as neutral as we can keep it social mechanism for detecting the cheaters, exposing the cheaters, and stopping the cheating from getting out of hand. And that, my friends, is called government. But what if someone corrupts some part of the government, then doesn't everybody have to bribe their own part of the government? Yes, and that's bad. And that's why our ancestors invented divided government, checks and balances. But what if that fails, and someone manages to corrupt the whole government? Well, that's pretty darned unlikely, but that's why we invented Freedom of the Press, why we set up an entire different set of organizations, outside the government, that make big money every time they catch someone in the government cheating, but that the government can punish the heck out of if they prove that they were cheating. And that's called democracy, and freedom.

Does this mean that every opportunity to cheat has to have its own referee stationed over it? I hope not. That gets expensive. Imagine a world in which the only thing protecting your property was the quality of the locks on your door. How much would you have to spend on those locks? No, we get by with cheap cruddy locks that are little more than symbolic, in most of our homes and many of our businesses, locks that can be jimmied with a fingernail file faster than they can be opened with the key, because we know that for most purposes, the lock is only there so that the person who does jimmy the lock and who carries off the stuff can't claim afterwards, when they get caught, that they had permission. It can trivially easily be shown that voluntary compliance, where everybody knows that if anybody cheats we all have to cheat, or worse, we all have to spend huge sums of money on preventing and/or catching cheats so we all lose money, and so nobody cheats, is the cheapest and best way to live.

Unfortunately, it's unstable. Because sooner or later, in any situation, someone loses anyway. Some of them will take it gracefully, retool to compete again, or go on to do something else. But sooner or later, someone looks around, sees that there aren't enough safeguards against cheating to prevent them from getting away from it, and concludes that nobody will be hurt if they, and only they, cheat. And maybe they're right. Or maybe they're not, but maybe they are. But now they're saving money, or making more money than their competitors, by cheating. And pretty soon everybody has to cheat just to keep from losing everything. But that ruins the game, and everybody ends up losing everything anyway.

This all feels perfectly obvious to me. It must not be obvious, because we've got one and a half political parties out of two in the US convinced that government enforced regulations are always bad, and that only voluntary compliance is good. But those political parties, so convinced that rational actors will never cheat if they're allowed to self-regulate, are the only ones scratching their heads (and looking for nefarious explanations) trying to explain a headline that was in the New York Times last week: "In Turnaround, Industries Seek U.S. Regulations" (Eric Lipton and Gardiner Harris, 9/16/07). Especially since one of the examples in there is absolutely textbook quality: the ATV manufacturers who are lobbying for tighter safety standards for ATVs.

See, here's the thing the whole industry figured out decades ago. There was a point where ATVs were starting to get a reputation as death traps. Not only were they being threatened with expensive regulation, no it was worse than that. Customers were coming to the conclusion that it was absolutely inevitable that if you bought an ATV, one or more of your own family members were going to die. Who buys that product? Sure, maybe some people would be overconfident enough of their ability to handle it, and some ignorant enough to ignore the risk, but not nearly enough to support a robust ATV industry, to support the kind of dealer network it takes to get ATVs into customers' hands. So the only way for the industry to not just stave off potentially over-reacting and over-expensive regulation, but more importantly the only way for customers to feel safe buying ATVs for their family to play with, was if the entire industry designed safer ATVs and that was all they sold. Why does it have to be the whole industry? Because there's a paradox here: the unsafe ATVs are a lot more fun, while the fun lasts. Make a less safe ATV than your competitor, and all his customers will defect to your brand ... right up until he makes his ATVs less safe to catch back up, and so does everybody else competing with the two of you, and so many people die that customers get spooked and stop buying ATVs altogether. So with that strong an incentive, companies came up with a voluntary code governing safety features on ATVs a long time ago. But what do you know? Somebody's losing money. Somebody hungry enough to say, you know what? If I'm the only one who makes dangerous ATVs, what harm will it do? And in this case, what a shock, it's a Chinese company, one that wasn't here when the ATV market almost tanked last time, one that doesn't understand as viscerally what would happen if they succeeded in dragging everybody down to their level. So unsurprisingly, the ATV manufacturers have taken their voluntary code to Congress, and to the federal regulatory agencies, and are lobbying hard to make it mandatory. Because they discovered that, at least for now, it's the only way to keep somebody from cheating. And if everybody cheats, they all have to cheat, and the whole game collapses.

And you know what that's called? It's called classical liberalism. And it's a mark of what's wrong with the world today that I have to explain that all over again, that we somehow forgot why we went that way in the first place. There's a line I'm very fond of, I think it comes from Fiddler on the Roof, about how tradition is the collection of solutions to problems we solved so long ago that we don't even remember what the problems were? Well, guess what ... there were really good reasons for the tradition of classical liberalism. We got argued into trying getting rid of it, to see if the problems would come back, in no small part because after decades of prosperity, we forgot what the problems were. And now they're all coming roaring back. So, unsurprisingly, from health care to regulation of health care products, from taxes to fund public infrastructure to prohibitions on polluting public air and water, even the most hard-nosed business managers and CEOs are now ahead of the curve, ahead of the politicians: an ever increasing number of them are clamoring to get classical liberalism back.