Tyler Cowen has written a provocative essay: The Paradox of Libertarianism. According to Tyler, the pursuit of libertarian ideals has led to the unintended consequence of expanding government. The logic of his argument is simple. Every time libertarians win an argument, politicians cease to do particular stupid things. When government ceases to do as many stupid things, our demand for government goes up, because it works better. Also, as government ceases to do as many stupid things, we become wealthier — which means we can afford more government. Furthermore, there are some things we want government to do for us. Tyler mentions the possibility that global warming is caused by human activity, and that government is needed to deal with this problem.
On the surface his arguments seem quite compelling. The more obvious assumptions behind his arguments are, after all, quite familiar to libertarians. We each pursue our own self interests with the best available means. As government improves as a means of satisfying our ends, most people will want more of it. Of course, some people don't want government because it is government. But such people are few and far between. Most people are pragmatic enough to keep their options open as far as private- and public-sector alternatives are concerned.
Yet, there are good reasons to doubt the merits of Tyler's arguments.
First of all, one could argue that Tyler has posed false choices. I agree that the politician who proposes increased federal funding for public schools is better (or less worse than) a politician who wants to nationalize all industry. Politicians have become more reasonable and modest in their proposals (outside of Venezuela). We must ask ourselves three questions.
First, what do we mean, exactly, by saying that libertarianism has improved the quality of government? Has libertarianism caused government to do fewer stupid things or things that are merely less stupid? Is government is doing a lesser number of stupid things relative to private sector alternatives, or is it doing things that are not quite so stupid in comparison to the private sector? If government is indeed eliminating the number of stupid things that it is doing, and perhaps doing more 'smart things' then it has improved relative to private sector alternatives. If government merely doing things that are not as severely stupid as before, then private and public sector alternatives are closer than before, but it is not at all clear that we are better off with more government.
This first question leads to a second question. Tyler assumes that government as a normal good. In economics a normal good is a good that people consume more of as their income grows — as opposed to an inferior good. Libertarians insist that a large activist welfare-regulatory state is not a good, but is instead a bad. Tyler has hit upon a central difference between Neoclassical and Austrian economics in his essay. Tyler is writing from the Neoclassical point of view. In the Neoclassical view consumers choose between goods and avoid bads. There is no question concerning which commodities improve our welfare and which commodities reduce our welfare. Choice is simply a matter of rational thought concerning well known alternatives.
Austrian economics allows for genuine error. Carl Menger divided goods into two groups: real goods and imaginary goods. All goods are means which we use to satisfy particular ends. Yet there are specific conditions that must be met of we are to actually improve out well being. Real goods have characteristics that put them into causal connection with the satisfaction of particular ends. Roast chicken satisfies hunger. Penicillin kills infections. Yet people sometimes commit errors where 'attributes are erroneously ascribed to things that do not posses them' or 'where non existent human needs are mistakenly assumed to exist' (Menger p53 1871). People once believed that bleeding cured disease. We now know that there exists no causal connection between blood letting and good health. Neoclassical economics assumes that we have learned all that we need to know regarding the causal connections between characteristics of goods and the ends that they satisfy. Austrian economics assumes no such thing. This issue is important to Tyler's essay. Tyler assumes that modern government is a good, not a bad, and that people know it. One way of thinking about libertarians is that libertarians are people who see government as an imaginary good. Welfare state liberals see it is as a real good. Tyler sees a paradox in that libertarian success improves government and causes us to consume more of it, but this paradox exists only because he thinks in Neoclassical terms. To Tyler government is just a normal good, much improved over earlier versions. We should want more.
In Austrian terms government was a particularly bad imaginary good and it is now a less obnoxious imaginary good. Most of us want more, but libertarians know better. This is crucial — Tyler is implicitly assuming that welfare state liberals are correct and that libertarians are wrong, as far as the nature of government is concerned. To libertarians welfare state liberals (and on some issues conservatives) see in government welfare enhancing attributes that do not really exist. There is no paradox in saying that people want more government because libertarians are wrong. This is what Tyler is really saying when he categorizes government as a normal and real good.
Furthermore, people often use government to force others to live a certain way. Conservatives believe in the existence of questionable human needs on the part of others when they push for their social policies. People would really be better off without drugs, pornography, and other vices. Are these real or imaginary goods? Are AIDS and cancer patients really better off without medical marijuana? Libertarians see the conservative social agenda as a set of imaginary goods. Generally speaking, Austrians believe that we have yet to perfect human knowledge concerning the causal connection between means and ends (and never really will achieve perfection). Neoclassical economics leaves no room for such errors. Given the obvious absurdity of the Neoclassical position on this issue, it should be clear that Neoclassical economics is itself an imaginary good, to which many ascribe a nonexistent ability to reach proper conclusions regarding social issues.
Menger also noted that in order for a good to be a good, people must recognize the causal connection between a good and the ends that its characteristic can satisfy. Hayek often insisted that people failed to recognize the things that markets do for us on a routine basis. The spontaneous order of markets is subtle and to most people unrecognized. Libertarians see market order and capitalism as under appreciated. Of course, in Neoclassical terms there is no real knowledge problem. Each of us possesses all of the knowledge that is worth knowing (see George Stigler's 1961 article on the Economics of Information) and all of this knowledge is accurate. We need only put this knowledge to use. To Austrians, recent libertarian success has consisted of causing people to realize that they have been consuming particular imaginary goods in the public sector, and that the private sector constitutes a previously unrecognized real good. Further libertarian success in these matters will reduce the size of government rather than increasing it.
The informational problems of political choice are themselves vast. Welfare state liberals and social conservatives wrongly ascribe godlike abilities to themselves when they assume that their proposed policies regarding economic and social policies would lead to some kind of ideal society. Society, in all its complexity, is too complex for even the brightest mind to comprehend in detail. Yet proponents of the modern welfare-regulatory state think otherwise. Whose position is more reasonable, those who think that each can at best run their own life, or those who think that others would benefit from the imposition of their vision for society through governmental coercion? Proponents of modern state err regarding the causal connections between their own intellectual capabilities and the welfare of society.
This all leads us to our third question. Is the libertarian versus welfare state liberal/social conservative debate about personal interests or conflicting ideas? Tyler wants it both ways. Tyler mentions that libertarians are wining on some issues, but insists that the public will pursue its interests in a paradoxical direction. Libertarians have had some limited success in debating ideas. We have changed the way that some people think about some types or parts of government. We have changed the way some people think about the causal connections between private and public sector alternatives. The point here is simple. The libertarian versus welfare state liberal/social conservative debate is about ideas directly, and the pursuit of self interest indirectly. Neoclassical analysis of politics (Public Choice) focuses on rational choice among known real public alternatives. Austrians reject the informational assumptions of this analysis, and rightly so. As Mises wrote in his critique of socialism (1922 p 459–460) 'everything is decided by the interpretation and explanation of the facts, by the ideas and the theories … Only ideas can overcome ideas and it is only the ideas of Capitalism and of (classical) Liberalism that can overcome socialism'.
Tyler's Neoclassical analysis leads us to the conclusion that people will consume more government as its quality improves, and that libertarians promote this because the pressure we exert improves government. This is wrong. We debate ideas, and as people change the way we think we change the way we pursue our interests. As ideas change society changes. If libertarians have further success in convincing people that activist government is a bad, rather than a good, our consumption of it will go down. People pursue their own interests, but as Mises recognized changes in our ideas change how we interpret private and public sector alternatives. Changes in our ideas change how we perceive the institutional alternatives before us. Tyler does not allow for any of this in his analysis. Rather, he focuses on a neoclassical approach to analyzing the prospects of libertarianism in reducing the size and scope of government. In this way Tyler assumes, implicitly, that libertarians are fundamentally wrong about the nature of the modern state, and does not allow for the strongest Austrian arguments (concerning ignorance and error) to enter into his analysis. There is no paradox to libertarianism. If we are right and win more arguments, the state will decline— as the accuracy of public knowledge concerning the causal connections between alternative institutions and our welfare increases. If we are wrong, as Tyler implicitly assumes but does not prove, then we likely face a future of big government. Lets debate this rather than assuming that the debate is already over.
DW MacKenzie, SUNY Plattsburgh.
Hayek, FA: The Constitution of Liberty
——.: Law, Liberty, and Legislation
MacKenzie, DW: 'The Use of Knowledge about Society,' Journal of Economic Behavior and Organization
Menger, C: Principles of Economics
Mises, LE: Socialism, an Economic and Sociological Analysis
Stigler, George: 'The Economics of Information,' Journal of Political Economy