Some libertarians and capitalist anarchists claim that technology is inevitably winnowing away the power of the state. Dale Fitzgerald II wrote a piece for LewRockwell.Com the other day (Encryption, Finance, Freedom, and You) arguing that pervasive encryption would allow people to conduct financial transactions that would be impossible to trace (and hence tax). Jeremey Lott responded in a piece in WorldNet Daily (Against Libertopia) that, in fact, there are many ways for the state to interfere with this libertarian utopia. As Lott notes, we live in a country where the state can seize your property without trial on the mere suspicion that the property has been used in an illegal activity. How long before the state starts confiscating computer equipment of those it believes are violating the law (hint, the federal government has already done this on numerous occasions without a trial).
Of course Lott and Fitzgerald are half right. On the one hand, it is relatively trivial for a committed state to prevent its citizens from using technology to circumvent government control. Contrast, for example, the former Soviet Union with North Korea. The Soviet Union had onerous regulations on everything from photocopiers to VCRs; North Korea has even more stringent regulations (radios sold in North Korea are supposedly hardwired to tune in only certain bandwidths, for example, to prevent North Koreans from easily listening to non-government approved broadcasts).
Both countries faced a choice — relent to some extent on the regulation of technology to try to promote economic growth or clamp down and accept the attendant poverty. The Soviet Union chose the former course and disappeared. North Korea, China, Vietnam and Cuba have so far largely chosen the course, willing to accept significantly slower economic growth in order to preserve state control.
Fortunately for those of us living in Western democracies — as Bill Clinton famously observed, it’s the economy, stupid. Those behind the scenes at the CIA, NSA, FBI, etc. would love to simply ban strong encryption, for example, but would have a revolt on their hands from businesses, and eventually voters, who need it for economic transactions. The problem for Western states wanting to extend control is that technology is a double edged sword, growing the economy which enhances the popularity of sitting governments while simultaneously increasing the power of those who want to escape the reach of the state.
Of course we’re nowhere near the sort of system Fitzgerald imagines. How many people even bother to routinely encrypt sensitive personal or business correspondence? I’d be shocked if the number was higher than 1 percent. The sort of system required to place financial transactions beyond the purview of the U.S. government is probably 10 to 15 years or more away.
On the other hand, if it ever arrives the modern state is going to be in a world of hurt. After all, millions of Americans already try to hide from the IRS cheating on their income tax forms or simply not filing them. The underground economy, where people trade exclusively in cash and don’t keep records, is also huge (I’m always impressed by the number of people I know who do part or full time work at a slight discount in order to be paid in cash and thereby avoid the reach of the IRS).
There will always be ways for the committed state to try to tax citizens even in this libertopia, but the problem will be whether or not they are efficient or whether in its attempt to crack down on the technolibertarians will also entail unacceptable risks to legitimate commerce that would be political suicide. If this technotopia is constructed in a way that it is impossible to shut down without also shutting down large parts of the economy, then Fitzgerald is right — we’ve already won and don’t know it. If, on the other hand, the state rigs the system to make it easier to go after “rogue” citizens, then Lott is correct — the state will crush Fitzgerald’s libertopia like a bug.