When asked this question many people describe what they think an ideal world would look like and then point out how this ideal differs from the world we live in.
However, the visions we have of ideal worlds are not always possible worlds. A possible world has to be a world that is subject to the constraints of the laws of physics and biology, and one that is achievable by fallible humans. Charles Murray has suggested that if we were living in the best of all possible worlds we would be unaware of it (“In pursuit of happiness and good government”, 1988, p 242). He argues that only an omniscient bystander would know when we had reached the point when further attempts to reduce the bad things in the world would be futile because it would only increase the net amount of bad things. For example, just about everyone would agree that child abuse is a bad thing that should be reduced as far as possible, but in order to eliminate child abuse completely governments could end up doing more harm than good - for example, by separating children from non-abusive parents. We have to accept, reluctantly, that in the best possible world some parents would still abuse their children.
It seems to me that we would have a better chance of knowing whether we were living in the best of all possible worlds if we were living in a framework for utopias - to use an expression used by Robert Nozick (“ Anarchy, state and utopia”, 1974, chapter 10).
Nozick argues that, because people are different, no one vision of utopia could command universal assent. Utopia should be thought of as a framework for utopias – consisting of different and divergent communities under which people would lead different kinds of lives under different institutions. Even if it is clear to an omniscient bystander that one particular type of community is superior to all others, the limits of human knowledge mean that we can only be sure that one form of community is superior to others by observing which forms of community flourish in a competitive environment. The test is whether people decide to join particular communities or leave them, or whether members modify the rules of their community to make them more like other communities.
To cut a long story short, it seems to me that we will know that we live in the best of all possible worlds when people are free to choose the kind of community they live in. We are a long way away from the best of all possible worlds when we have a central government which seeks to impose uniform national standards for all kinds of regulation.
In my view, if Australia is to move toward the best of all possible worlds it will need to correct the fiscal imbalance between federal and state governments and re-embrace the kind of federalism embodied in the Australian constitution which defines and limits the powers of the federal government.