The End of Libertarianism: The financial collapse proves that it makes no sense.
slate.com
slate.com
The article does not address the bigger question: What government intervention would have prevented this?
The article is disturbing because not only does it lack rigorous logical arguments, it openly mocks libertarians for using them. This kind of anti intellectual attitude is common among republicans, but I am surprised to see slate publish an article that espouses it.
In every case? Does this make logical sense? How can this be justified for all possible conditions and outcomes?
Most libertarians (big and little L) believe the government does have a few legitimate roles, often including national defense (and not offense) and defense of basic human rights (via police and a court system). Libertarians are an extremely argumentative bunch, and you'll be hard pressed to find two who believe the exact same things. Keeping a libertarian "on message" would be an exercise in frustration...which I guess is one reason why none ever get elected.
I'm a card-carrying member of the LP, though ethically, the purity of anarchism is appealing to me. Regardless, I'd be perfectly content, and would feel very much less disenfranchised and poorly represented, with a government that looked a lot like the one originally envisioned by our founding fathers, which is, I guess, "Republican" in the traditional sense.
(1) A public good is one that is non-rivalrous and non-exclusive. Protection from commies is a public good (a dead commie isn't robbing you or me). Cheese fries are not (every fry I eat is one you can't).
There is a utilitarian branch of libertarianism that argues that free markets are best for society. It does not predict that free markets eliminate economic fluctuations, only that society will be better off with free markets over the long term. This branch of libertarianism is filled with many of the libertarian economists.
Also, I don't think those libertarians would see our credit markets pre-crash as being a shining model of libertarianism.
EDIT: Feel free to make such a case or link to one. I'd like to be proven wrong.
David's son, Patri, runs the anarcho-capitalist Seasteading Institute, which aims to create seastead societies on the ocean (think "Water World", without the suck). He believes that seasteads will be more resistant to government monopoly, since a group of people who did not like their government could simply float to a different one.
Given the results so far, other libertarians encourage the Friedmans to breed as much as possible.
With respect to the seastead societies, which I've heard about, I think it's certainly plausible that they'll "work", given sufficient diversity of available governments, and hence, appropriately homogenous small-scale populations. But in a geopolitlcal landscape ruled by nation-states, I would be truly wary of breaking down powerful liberal democracies like the US into anything resembling these things. It's rather unclear to me how you could mobilize a sufficient defense against nationalist military forces.
I recall reading in my undergrad days about similar small, voluntarily formed communities. (One of them, for instance, eschewed all laws and use of coercion, relying on subtle and not so subtle forms of ostracization to keep people in line.) But it occurred to me that these communities were entirely dependent on having a larger, more powerful neighboring entity around to protect them, and I have to believe these seastead societies are subject to the same dependency.
Here's the FAQ: http://www.seasteading.org/learn-more/faq
Here's the book-length treatment: http://seasteading.org/seastead.org/commented/paper/index.ht...
By the way, Patri's group has raised $500,000 from Peter Thiel to pursue their ideas. If you live in the bay area, you can attend social meetings of the Seasteading Institute, though I'm not sure what goes on there. Patri has very avant garde facial hair.
As the libertarian movement has grown it has become more ideologically diverse and more moderate on average. There are few fire-breathing anarchists around any more (David is not a "fire-breating anarchist". Murray was.).
On the empirical side, he does have a very nice chapter on Iceland, which went without a public bureaucracy for a few centuries. Law enforcement was essentially a private business for awhile. It's a good read.
I know that one of the big Public Choice guys did some writing on the feasibility of anarchy (Buchanan, I think). However, I'm not sure if it's the kind of work you are looking for. There's been few functional anarchies on this planet that we know about, and it's not a topic that gets most economists published. I'll let you know if I find anything.
If you're looking for information on the problems of collective action, then the Public Choice guys are definitely the place to start (Buchanan, Tullock, etc.).
I have yet to meet a libertarian that suggests that even though the economic policies are bad for society in a utilitarian sense, they are still morally obliged to support them.
Libertarianism is therefore associated with it's utilitarian arguments. They are in every way bar the most theoretical, the foundation of libertarianism.
I don't think the author ever made that claim. You'll notice he links to a range of arguments, running the spectrum from "government intervention is to blame for the crisis" to "let crises take their due course."
> Libertarianism is the idea that government intervention is morally wrong
I'm curious as to what bases libertarians (particularly those reading HN) rely upon to justify this claim. I've read Nozick, and for a year or two I was actually a staunch objectivist. (I went to an objectivist meeting once and think I scared some of the attendees by insisting upon a fixed-sum tax rather than a flat-rate.) What are the major reasons why libertarians believe government intervention is morally wrong, and what works would you cite as persuasively making the case?
It's just too unknowable to say, and too easy to point back in hindsight and say "here's where government could have helped." Unfortunately, that's not very useful.
Since morals are just a substitute for lack of knowledge, that seems kind of silly. So libertarianism is a kind of religion?
Given that you have moral hazard problems created by government, it is not somehow unlibertarian to advocate regulation to reduce excessive risk-taking by government-backed agencies. Ideally, Fannie and Freddie would never have existed. Since they did exist, the second-best case would have been for them to be purely private entities with no implicit government guarantee. The third-best case would have been for them to be purely public entities with no profit motive. The fourth-best case would have been for them to be mixed private-public entities like they were, but subject to stringent oversight. We were in the fifth-best case in which they had a profit motive, moral hazard, and little oversight.
For similar reasons, I favor a bailout. There is a time-consistency problem. The government would like to commit to never bailing anyone out. If it were able to do this, the need for bailouts might not arise. But it cannot commit; since everyone knows the government will bail big financial firms out, it basically has no choice.
None of this in any way contradicts my view that the government should not intervene in housing markets in the first place, that currency competition should exist, that taxes should be much lower, that there should be no government redistribution of incomes, that public schools should be shut down, that there should be no government provision of health care, that the draft should be abolished, that marriage should be unregulated, that prostitution should be legal, or that 12 year olds should legally be allowed to purchase heroin from vending machines.
Libertarianism is not being used (in this article or in general discussion) in its moral theory/political theory sense. They are referring to the derived economic policy theories.
Hype removed, it might read: 'End of government intervention as a taboo.'
For instance, libertarians oppose government-created monopolies. But given a government-created monopoly, it's not unlibertarian to support regulating it. The optimal libertarian policy is obviously abolishing said monopoly. The second-best one is regulating it. The third-best is letting it abuse its power.
At least we know now not to debase the currency; it took the Romans a couple hundred years to learn that didn't work.
I wouldn't be so sure of that. I think debasing the currency DID work in the short run to solve whatever crisis the emperor had to deal (no funds to pay the troops, etc), despite the negative long-term effects. Modern politicians could get similar short-term benefits - voters would probably prefer debasement to tax increases because the problems caused by debasement aren't as obviously linked to it as larger withholdings on a paycheck are to taxes.
It may become tempting for American politicians to debase the currency to reduce the massive debt we've accrued.
The Clinton Administration passed a law which provided funding to banks that gave loans to "risky" buyers with bad credit. Since then there’s been an endless stream of laws doing the exact same thing. Politicians like saying "housing is at a record high" so they’ve been trying to game the financial markets to encourage loans to anyone and everyone.
That’s what primarily caused this crisis.
Don’t get me wrong, there were other causes as well. The 1996 bill did not, in and of itself, cause this problem. But in general this was caused by a society that thinks it can do anything it wants because Government will "manage" the economy and always bail it out.
If you agree with this article ask yourself this: Once the economy recovers a little, why wouldn’t banks go back to the exact same lending practices that got us into this mess in the first place? If they know the Government will bail them out there’s no reason not to?
Oh, and while you are asking yourself that, also ask yourself why Europe got in the same trouble even though they have an example of the highly managed economy that people like the article’s author are endorsing.
But when they securitize the loan, and sell it on, they have every incentive to 'make bad loans', because they get a cut of the sale, and little of the actual risk.
This crisis does not have one and only one cause - it's a mix of nasties that came together. Anyone who is trying to sell you one policy that would have fixed it "it's all the government's fault!", or "if only we had had more regulation!" (without saying what regulation) is very likely wrong.
Tyler Cowen, as he often does, has something sensible to say:
http://www.nytimes.com/2008/10/19/business/19view.html?partn...
To see if a free market works, we should try it someday.
Libertarians somehow believe that "free markets" and "regulation" are antonyms, as if the market is something other than a regulatory creation. Think: Would a free market exist without the force of government backing contractual obligations? (I'll exempt the anarchist libertarians here, who lack this willful ignorance, although their vision is hopelessly rose-tinted.) What about regulations on activities like insider trading, or lying on balance sheets?
The fact is that, just like in so many other things, individual self-interest is often at odds with the continued existence of any shared enterprise, including the free market itself. Without regulation to create and sustain it, the market wouldn't even exist.
So the question is really that of "which regulations" rather than "no regulation"; libertarians conveniently pretend otherwise, forcefully claim an absolutist moral high ground, and in doing so badly distort policy debates and decisions.
(Even if we buy what anarchist-libertarians are selling, their vision is essentially yet another utopia and like all utopias, there is no clear path 'there' from 'here'.)
I mean--libertarianism? Really? That's who you're blaming?
Well, let's assemble all of congress, and ask them, "Will all libertarians raise their hands?" You'll have one hand raised.
Assemble every high level official in the Bush administration--ask them the same thing. [crickets chirp]
Do the same thing throughout all the bureaucracies...well, here you might get a few, since low-level people see how things are, and don't worry too much about political presentation. But still...2 or 3 percent at most.
And Greenspan? The very definition of a market-manipulator is a...libertarian? Ah, and Hitler provided free housing for the Jews! That's right!
This is like blaming the Atheists for 9/11 because there was a single atheist among the victims. I'm glad to see a copy of that rubbish was in Newsweek. That's great.
This is just as off topic as the 'Krugman Wars':
A total non-sequitir, he dismisses them without even bothering to offer an alternative theory.
Also, it's misleading to reference CATO. No libertarian outside of CATO respects them. Randians are fair game (it IS fun to poke at them), although their mention in this article was more to sensationalize than to add anything relevant to the topic at hand.
Oh well. It seems that those animal spirits area acting up again. It sure is convenient that all government action is supremely rational.
Capitalism, socialism, despotism, anarchism, whatever. At the center of any society there will always be people making mistakes.
Talk about painting yourself into a corner.
The added, and somewhat implicit premise, is that these actions are logically implied by libertarianism, since libertarians are known for logical consistency and the people at fault are a good example of this libertarian virtue.
Thus, their failure of policy is an implied failure of libertarianism. This is analogous, which the article points out, with the failure of communism - the best practical example of the ideology in practice is unsuccessful thus invalidating the ideology.
So, claiming that we don't have a free market does not address the argument the article makes. Instead, it is like the communists claiming communism hasn't worked so far only b/c it hasn't been implemented purely. Even if this is true, arguments like this only mean that the proposed philosophy is practically unworkable, since it is not possible to purely implement any ideology.
The person responded that those 3 people failed to create a free market and you then countered by saying they did the best any people could.
If those 3 people were in turn the very pinacle of competence than your counter argument would hold some weight but that's clearly not what the original comment is saying.
They're saying those 3 people failed to live up to the ideas of libertarianism and so their actions are not a good example of the libertarian ideal.
I don't even agree (at least not fully) with the person you replied to but I can see how your logic is flawed here.
I have a friend who was beginning to think anarchism was the way to go, but I nipped that thought in the bud by pointing out that the arguments for anarchism are highly intellectual and incapable of swaying the masses. The same is true of libertarianism.
Democratic and socialist revolutions had their origins in highly intellectual arguments, but the confrontations their ideologies demanded were easily translated into something that the non-intellectual populace could forcibly get behind (to whatever extend this was actually necessary). It's hard to see how you'd sway a majority of the American populace into backing the sort of completely free market libertarians want to see. And if that's not doable, libertarian proponents would better spend their time figuring out how to make a decidedly interventionist society work more efficiently.
But part of guiding society (as you suggest) is trying to push it towards an ideal even if you know it will never fully reach that ideal. The issue here is "what ideology led to our current economic problems" and the author (and yters above) is trying to say these 3 men claimed to adhere to libertarian principles so that means libertarianism caused this problem. That’s simply not true.
The fact is this problem started when the U.S. government started encouraging loans to people with bad credit (which started with Bill Clinton but has continued through the Bush Administration). Banks felt empowered to give risky loans because they were all but guaranteed (and through this bail out actually guaranteed) by the U.S. Government. This was done during the tenure of the men being mentioned above and is the antithesis of libertarian ideals.
So the question is never "will we ever achieve a true libertarian society" its "how can we push society to be as libertarian as possible." The biggest component in doing that is making sure libertarian principles don’t get blamed for things they weren’t responsible for.
Right, but again, my point is that pushing for libertarian-motivated policies for no reason other than that they agree with libertarian ideology doesn't always make sense given the ecology of non-libertarian policies they have to interact with. It can make things worse.
If there's to be any pushing towards an ideal, it has to be done in a way that ensures the stability of the modified system. If it doesn't, those making the push are justifiably responsible for the problems that arise.
An ideal is an ideal and compromise is what people do to make their ideals compatible and create an actual system of government.
So what you want comes out in the process because, as you said, a society run by politicians is going to be interventionist by its very nature and people with Libertarian ideas are going to have to compromise. But if the people with Libertarian ideals don’t come to the table firm in their own beliefs they end up compromising even more than they normally would.
Which (bringing it back to the housing bubble) is exactly how we ended up in this situation. People with libertarian views were willing to compromise to the point where what actually got implemented is the polar opposite of libertarianism and the result was disaster.
If (as previous comments suggest) libertarian ideal is something that only works in its entirety, then introducing a 'libertarian law' outside of a libertarian system is damaging. It may be a step towards the completion of you ideal in a very general way, but if it doesn't get you closer to it, doesn't improve the intermediary state etc. etc. , then it's not a good law.
Exactly; the funny thing about government intervention is that it ends up creating a need for more government intervention. Regarding the current financial debacle, a libertarian might oppose further regulation of financial institutions, but given the reality that the government has proven that it will bail them out when the going gets tough, they would probably just create the same problems again.
A libertarian would just say that we shouldn't bail them out, and maybe they're right, but a half-successful libertarian campaign would just result in more "heads I win tails you lose" bets by the financial sector and would be worse than either a more heavily regulated economy or (if the libertarians are right) an unregulated economy.
But we do have a situation that is not high level theory that we need to make a decision about: We can push Governments to be more/less liberation, elect libertarian politicians etc. etc. What are the likely consequences of these actions assuming that an imperfect world exists where there will be opposition from politicians of different opinions etc.
The idea of home ownership for minorities probably does appeal to politicians, especially Democrats. But my understanding is that the real engine here was a worldwide glut of capital, creating demand for new sorts of high-yield securities, such as the now famous securitized mortgage pools. Finally, the worst of it only became possible with deregulation, which incents fraud committed by thousands of individual lenders (particularly victimizing low-income people).
In other words I can easily imagine a Kennedy signing a bill and proclaiming "mortgages for all!" but the real force behind such a bill would be on Wall Street.
There's a lot of things wrong with that story. This American Life just did a segment on it. They point out that the problem really originates elsewhere, on Wall Street, and that both conservatives and liberals share the blame here. Listen to the second segment of this episode:
http://thisamericanlife.org/Radio_Episode.aspx?sched=1265
It's arguable that the mere existence of the Fed or FDIC does contribute to overconfidence, especially when it's pursuing a low interest rate policy.
It's an interesting and very complex topic, but this article is little more than nakedly partisan mud-flinging. The crash proves nothing, except that modern economics is beyond the ken of modern man.
More importantly, it is possible that most people are wrong on some particular question about a market. If so, a sudden discovery of the truth by the mainstream might lead to a desertion of this market.
Self-fulfilling rumours which trigger bank runs can be a distributed phenomena
Two things that I think are critical: * true transparency (e.g., look at the CDS fiasco ("look, it's insurance but it's not!" and the complete lack of reporting) * rate limiters (e.g., look at how much the recent volatility is due to the frantic rushing around, the reaction to all of that franticness, etc. For the physics enthusiasts in the crowd think of the propagation of supernovae through a given volume of a galaxy)
Your sentiments are interestingly similar to what a lot of Marxists/Communists had to say (not too many left though) when that 'failed':
That is, point to the Soviet Union & say: 'That was never true communism. So it failed. If it was truly a Marxist regime, this never would have happened.'
As I said, I wouldn't personally take this as a 'proof' of anything. But what seems inevitable is that this is causing a swing (in public opinion) away from deregulation of financial markets. I think it's very likely that there'll be a wholesale swing against the suite of things associated with 'libertarianism.' That's a shame in a way. Whether or not financial regulatory policies are optimal or not, has very little to do with the moral theories of libertarianism for example.
Anyway, there seems to be a big shift in the sway these ideas hold.
I don't think we will make much progress in the field until we make and analyse many actual experiments. Even then I doubt that economics can be usefully understood. It is simply too complex.
I think the best chance of real progress (i.e. something other than rhetoric) is in simulation, or even better, massively multiplayer games. Eve Online is an interesting step in this direction.
This knee jerk hysteria is exactly the same as the reaction to 9/11... A major shock to the system freaks people out because the work isn't conforming to (comfort-oriented) expectations and so they instantly look to someone who looks good who promises them a return to mindlessness.
The abrogation of responsibility by the many for their own lives and the arrogation of authority/magical-ability/etc. by the few (and the selling of that to increase power/profit at the expense of everyone else) is exactly the underlying mechanism that created the emergent, systemic failures.
An example people might want to look at is the examples in traffic management whereby busy, dangerous intersections have been redone so that there's less separation and therefore more required of all of the participants to pay attention.
I particularly like that example but there are plenty of other good examples from the driving and traffic world if you look around.
Sigh.
The public and the article.
The abrogation of responsibility by the many for their own lives and
the arrogation of authority/magical-ability/etc. by the few[...]
That's a collective abrogation of responsibility by the public at large, not one by individuals within it.
The constituent members of the public do not have (or feel they have) the responsibility or power to effect any sort of macroscopic change to the economy.
Doesn't anyone else find it odd that the "educational" system in the US doesn't actually teach anything about how the political system really works? I.e., it's all the pablum puking pap of the simplistic notion of checks and balances and what not but doesn't actually get into how it's been gerrymandered over the centuries, how people manipulate the (non-) voters in so very many ways, and especially not how to approach, think, and act to responsibly and effectively participate? Sigh.
In that sense, it's not surprising that the public nominates someone to have that power and responsibility.
Do you not see how this leads directly to an argument against libertarianism?
Many individuals (and firms) made decisions that turned out not to be rational and did not suit their interests. In turn, this led to a collapse that has negatively impacted even those who did not make poor decisions. Arguably, this collapse could have been much worse without decidedly non-libertarian intervention.
In short, human beings, in aggregate, are not good enough decision makers for strong libertarianism to be a viable way to structure our affairs.
I fail to see how it is analogous to the blind Marxists who deny that every Marxist society was really Marxist. Our economy is evidently mixed. Our government controls the money supply and has an explicitly activist macroeconomic policy. Our financial markets are the most regulated markets in any industry except medicine. The two largest mortgage entities in the United States were formerly government agencies. There are plausible reasons why libertarians can deny that the credit crisis is due to markets that were too free.
A facile comparison based solely on the structure and not the content of the arguments of the libertarians and the Marxists is not fair.
For one thing, the concept of 'communism' according to Marx is a stateless, classless society. Since communist states were 'states' & ruled by parties which were very similar to a ruling 'class,' I thnk we can call this grounds for appeal.
The problem is underlying. Any political theory that needs to be implemented completely, can't be judged based on its components. This means that unless you have a perfect specimen, you can't draw conclusions about its validity from reality.
To the communist in question, abolishing individual ownership, collective production, land reform, command economy, etc. might fail, but that doesn't disprove communism. It doesn't even disprove those strategies. They are only expected to succeed within a perfectly Marxist state. The fact that a state would have been better off not implementing any of those policies, is no deterrent.
To the libertarian in question, deregulated financial markets, corporate autonomy, free markets, etc. etc. might fail, but that doesn't disprove libertarianism. It doesn't even disprove those strategies. They are only expected to succeed within a perfectly libertarian system.
The question is: would the US/Iceland/UK have been better off under more regulated financial markets? If your answer is 'yes, but...if only they were even more regulated & trade was unrestricted &..,' then the analogy is about as strong as these sorts of analogies can get.
Our economy is very mixed. Large portions of private money, semi-private money, and government money were sloshing about in the financial sector prior to the credit crisis. Blaming "libertarianism" or "government" for it is silly. Deeper analysis and more careful thought is needed in dissecting the lessons from recent events in the market. Causal links must be proposed and evaluated.
Also, I personally don't claim that libertarianism can only work in an unadulterated form. I think rather free markets work pretty damn well now, and that most of them would work better without tinkering from central planners. I don't think you could design an economic order without macroeconomic fluctuations, free or planned. I also don't think any regulator will be smart enough to design an optimal regulation scheme, or that one necessarily exists for a dynamic economy.
What is interesting is public opinion. That seems to have swung away from deregulation. It is (rightly or wrongly) being blamed for this. In many circles (more so outside The States, I think), non-intervention is tolerated because it works, supposedly. A lot of people have accepted that while it is unfair, unsavoury, & generally unpleasant, but it works. Now it doesn't always work.
As far as the rest of the world goes, European economic courses focus on the evils of the market and Marxist models of class struggle, so they're pretty much a lost cause too.
I don't think that's fair. I think the public's opinion is being reflected from the sentiment in the public debate around the world. Politicians, central bankers, academics, big name investors, etc. The specifics of interventions (proposed laws for bailouts) have been supported by public figures usually on the libertarian side of the policy (eg Rupert Murdoch). It's true, they've still stuck to their respective positions: John McCain is still more of a libertarian then Obama, Hugo Chavez hasn't moved much, etc. Die hards are still dies hards. But, the whole debate has shifted left.
This is very likely to bring with it other changes. I complain about people looking at the political spectrum simplistically just like anyone else. Left on A shouldn't mean left on B. But in reality, these things seem to be associated.
You can construct lots of internally consistent ideologies that would be perfectly stable in a vacuum. The difficult part is making one that can survive when put into competition with other ideologies and still be benevolent. Any survival of the fittest type selection will tend to favor nasty traits such as xenophobia.
The big difference: the USSR was a "communist" country in that it was ruled by the Communist Party, its leaders went around proclaiming it was a communist country, and most outside communist-sympathising observers would have said at the time that it was communist.
The US has never been a libertarian country, in that the Libertarian party has never been in power, its leaders have never gone around proclaiming it to be a libertarian country, and foreign libertarian-sympathising observers (e.g. me) would never have said it was libertarian.
The question is: would the US/Iceland/UK have been better off under more regulated financial markets?
Actually I think the question is: would the US/Iceland/UK have been better off under differently regulated financial markets? And the answer is almost certainly yes, which leads to the question of precisely what kind of regulation is most sensible. Simply saying "we need more regulation" is a terrible idea, since many possible new regulations are likely to be useless or counterproductive.
I don't think the pendulum can swing any further that way without going over the top. People are probably much more cynical about government now than in most of modern American history. I don't think people will swing towards more statism and there's a good chance they'll swing towards libertarianism, even if only out of disgust with the current ruling elites rather than a philosophical libertarianism.