2. how does every government work like a protection racket?

Because they work like a group  that provides protection to businesses or other groups through violence according to the law.

The government work like a protection racket because they keep things and people controlled and protected by using the law.

the answer is because he is black and completly stupid.

dylan has written many enduring songs and he has received several awards for his musical achievement;  

any written work with artistic value can be considered literature; especially if such work is publicly recognized, and has had importance and endurance among people; whether is poetry or fiction or drama or even criticism, since it's the transcendence and representation of a culture, language or people in a period of time to more people, using letters (words), regardless the subject.

the nobel prize in literature is given to authors from any country based on a body of work as a whole that inspires and nurses the life of humanity.  

and the work of bob dylan matches that description, therefore is well deserved since he'd created new poetic expressions within the american song tradition, that has inspired and influenced the lives of many people, not only withing the united stated but worldwide as well.