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The Economics of Libertarianism, Confused

July 12, 2010

Tags Corporate WelfareFree MarketsEntrepreneurshipInterventionism

Harvard professor Edward Glaeser recently wrote a New York Times blog post entitled "The Economics of Libertarianism, Revealed." From what I've already told you about the piece, you should suspect that it's not exactly cutting-edge analysis. In this article I'll walk through Glaeser's critical observations, most of which misfire.

Opening With a Dickensian Non Sequitur

Glaeser starts his piece with a dash of whimsy:

It is both the best and worst of times for libertarians. On the plus side, real, live politicians who might conceivably get elected call themselves libertarians. On the negative side, true libertarians have lost their ancient luxury of being able to avoid any responsibility for the gaffes and errors of political leaders.

Presumably Glaeser has in mind some of the Tea Party favorites. Glaeser might be right, that in this unusual cycle there may be some cranky libertarians who usually don't vote, but in November end up helping to elect candidates who promise to slash spending and eliminate ObamaCare. If and when those nascent reformers get to DC and realize it's good to be the king, then yes, the libertarian voters would have been burned. Hopefully they will have learned the lesson: "Don't vote, it only encourages them."

Yet I detect something deeper in Glaeser's remarks. He seems to imply that people who sit in the corner and criticize the government — without rolling up their sleeves and joining the political process — are out of touch. But that's the whole point, now isn't it? The radical libertarian critique of the federal government isn't simply that it's inefficient, or that, gee whiz, we really ought to redeploy 3 percent of our troops from Iraq to Afghanistan.

No, the radical libertarian critique is that the people in DC are quite literally a bunch of thieves and killers.

I hate to be so frank, but that's what the situation is. It's not a "gaffe" or a mere "error" when the CIA sets up a foreign network of secret prisons, or when the president of the United States claims the authority to assassinate US citizens without any procedural challenge.

On the purely financial front, it's not simply an honest intellectual disagreement over the proper way to "shore up the housing market," "shrink credit spreads," "boost aggregate demand," and all the other euphemisms. No, the Fed and the Treasury have given trillions of dollars in direct handouts or indirect guarantees to some of the richest and most powerful people on the planet, at the expense of everybody else who uses US dollars.

Given our understanding of the situation, surely Professor Glaeser can understand why we libertarians engage in the "luxury" of not participating in this rotten system. Glaeser writes as if libertarians are the equivalent of a grumpy relative who complains about the food every Thanksgiving but never offers to help prepare it. Somehow, I don't think that's a good analogy when it comes to the crimes of the US federal government.

The Slippery Slope of Minarchism

Glaeser next discusses a recent primer on libertarianism from his Harvard economics colleague Jeffrey Miron. Glaeser goes on to write,

I always find it refreshing to take a quick, clean intellectual shower in the cold, pure waters of libertarian thought, but I find myself most interested in the murky areas on the edge of libertarianism, which Professor Miron explores with aplomb. Libertarians are rarely anarchists. Almost all of them believe in some form of state power, at the very least the protection of private property and the enforcement of contracts. Many of them, including Milton Friedman, are quite comfortable with larger exercises of state power, including the redistribution of resources to those who have less. Professor Miron writes that "antipoverty spending is the most defensible kind of redistribution," because "the goal of this redistribution — helping the poor — is reasonable and the costs of a well-designed limited antipoverty program (e.g., a negative income tax set on a state-by-state basis) are modest."

But once the need for public action is accepted, things start getting very muddy and we can't rely on either a love of liberty or fear of the state for guidance.

"A minarchist needs to explain why politicians can't be trusted with health care or the printing press, but they can be trusted with nuclear weapons and wiretaps."

On this, Glaeser is perfectly correct. I have previously written on the untenable position of minarchism, which is the advocacy of the "night-watchman state." Once you admit that the government can tax for some purposes (such as national defense), and is justified in establishing some monopolies (in police and judicial services, for example), then you can't object on principle to the other things it currently does.

After giving up the notion of sacrosanct property rights, the minarchist has to fall back on pragmatic arguments. But then the minarchist needs to explain why politicians can't be trusted with health care or the printing press, but they can be trusted with nuclear weapons and wiretaps.

The Strange Case of BP

After setting up the debate, Glaeser moves in for checkmate:

Consider the purely hypothetical case of a massive oil spill in the Gulf of Mexico. The traditional libertarian would argue that regulation is unnecessary because the tort system will hold the driller liable for any damage. But what if the leak is so vast that the driller doesn't have the resources to pay? The libertarian would respond that the driller should have been forced to post a bond or pay for sufficient insurance to cover any conceivable spill. Perhaps, but then the government needs to regulate the insurance contract and the resources of the insurer.

Even more problematically, the libertarian's solution requires us to place great trust in part of the public sector: the court system. At times, judges have been bribed; any courtroom can be influenced by the best lawyers that money can buy. Andrei Shleifer and I have argued that the early regulations were appealing precisely because of a sense that the courts couldn't be counted upon to protect private property.

We've seen this rhetorical move so often that it no longer shocks, but I ask the reader to stop for just a moment and consider what Glaeser has done. In order to "prove" that heavy-handed government intervention works — in contrast to a world of libertarian laissez-faire — Glaeser points out that our present system allows massive oil spills and corrupt judges.

This is really amazing when you comprehend it. It would be as if we were arguing about capitalism versus socialism, and Glaeser said, "Well, the greed of the Communist Party officials in the USSR clearly shows that the profit system can't be trusted to provide a fair society."

Let me make the point from a different angle. We can argue theoretically all we want about a purely private "regulatory" framework, in which insurance companies and private judicial rulings constrained businesses in their narrow pursuit of profits. But we also would want to occasionally check our theoretical musings against reality.

Now then, what system is currently in operation — the unregulated utopia of the libertarians? Or the highly regulated, social-democratic world of the interventionists? It is clearly the latter.

Suppose for the sake of argument that the libertarians are right, and that big government can't be trusted to provide us with a safe environment, a drug-free world, inner cities free of crime and poverty, and a well-educated citizenry. In that case — if the libertarian critique of big government were correct — then wouldn't the world look exactly like it currently does?

"The radical libertarian critique is that the people in DC are quite literally a bunch of thieves and killers."

Try it this way: Suppose we initially started in a society where the federal government had no oversight at all over international oil companies and offshore drilling. Then some worry warts come along and say, "But there might be a huge oil spill! We need the government to ensure safety."

The libertarian critics would say, "You naïve fools! What makes you think the politicians would actually deliver on such promises? Sure, they could set up a fancy new agency — call it MMS, say — that in principle would guard the American public against the rapacious oil companies. But in practice, this agency might be really corrupt. I'm not saying its employees would accept drugs and sex from the companies they were supposed to be regulating, or that MMS employees would have a party with a cake that said 'Drill, Baby, Drill' on the frosting. I'm just saying the regulators might not actually enforce the regulations on the books. In practice, the people of the Gulf would be more vulnerable to a giant spill by ceding authority to the federal government."

So I ask you, What does the real world say about this hypothetical debate? If anything, the BP spill is a strike against the case for government intervention. The people who think otherwise are implicitly relying on the premise that government intervention can only help.

In other words, people like Glaeser assume that there are a certain amount of potential private-sector disasters waiting to occur, and the government might be able to intercept some of them in time. So whenever a disaster (9/11, the financial collapse, the BP spill) happens, that just proves how fragile voluntary society is, and is further evidence of the need for bigger government. It never occurs to people like Glaeser that the massive failures on the government's watch might be evidence that the government is incompetent when it comes to protecting us.

One final point: Notice how Glaeser's argument works. He says an oil company can't be trusted to pay for damages, because it might not have enough money. Then he rules out an insurance company for the same reason. He implicitly relies on the premise that the government does have enough money, and that's why it's OK for the government to be in charge of these operations.

But of course, the government only has what it first takes from taxpayers. So Glaeser's argument boils down to this: A free market in offshore drilling wouldn't work, because it's possible that an oil company could cause more damage than it could compensate the victims for. So that's why we need a government, in order to take money from people in Montana to pay people in Texas for the damage caused by international oil companies.

$30 $27

Even if we accept the validity of this argument, notice that there's no logical stopping point. After all, what if there's a disaster so big that even the federal government can't pay for it?! Clearly everyone in the world must fall into line under one global government, the only entity with the resources to adequately oversee modern commerce.


Glaeser ends his post with this: "I may not always agree with [Miron], but I can think of no one who is better suited to write an introduction to the economics of libertarianism." With all due respect to Miron, permit me to say, "Mr. Glaeser, meet Murray Rothbard."

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