Sunday, October 23, 2011

An Unusual Argument Against Libertarianism

Gene Callahan is something of a 'recovering libertarian,' having written one of the better introductory books to Austrian school economics, and later disavowing himself of the libertarian movement.  He likes to antagonize ... I mean ... challenge libertarians, especially those of the Austrian school, and especially Robert Murphy, about their philosophical beliefs, and to my mind, often does so pretty convincingly.

In one of his latest volleys, he turns the logic of a common Austrian objection to Keynesianism back to bite the libertarians:

(Argument A):

1) Keynes's supporters say that his policies don't necessarily call for bigger government; instead, Keynes said governments should run surpluses in good times and deficits only in bad times, a recommendation which is entirely size neutral.

2) However, Keynes's advice was unrealistic; knowing public choice theory, we can see that, in fact, governments will love running deficits and hate running surpluses, and so will only pay attention to half of his advice.

3) Therefore, in fact, Keynes's prescription calls for more government.
So, let us apply this to a libertarian policy stance (Argument B):

1) Libertarians say that the market should decide both when a firm should grow large and when it should fail. No one should step in to bail out market losers, no matter how big they are nor how many people they employ.

2) However, their advice is unrealistic; knowing public choice theory, we can see that, in fact, governments will happily allow businesses to make profits and grow large (profits can be taxed and large businesses are great campaign contributors, etc.), but will be very reluctant to allow them to fail.

3) Therefore, in fact, libertarians' prescription calls for larger government. 

His point here isn't necessarily to show that libertarianism is wrong, but more to highlight a cognitive dissonance.  Libertarians can't very well lay the blame for big government at the feet of John Maynard Keynes when governments have explicitly broken his advised policy, and then hold themselves blameless when the giant accumulations of private wealth and power that their own advised policies have made possible make it more and more likely that governments will become interventionist and generally anti-libertarian.

He makes the argument even more forcefully in the comments:
How about, for B, by allowing greater concentrations of private power, the libertarian launches us onto a slippery slope that that makes it more and more likely that those with that power will be able to capture the state and use it to extract rents from the rest of us?
Aside from Gene's actual intent merely to illustrate libertarian incoherence, this, I think, is a very compelling argument.  To be sure, a great number of other contributing factors went into the long decline of the United States over the years, in terms of liberty and otherwise, but it should be obvious by now that this is one of the major ones.


  1. Keynes wanted government to exercise constant oversight and control, to collect extra taxes in good times and borrow/spend extra money in bad times (requiring that government collect more taxes later). This is a call for smarter, more meddlesome, bigger government in good and bad times.

    Politicians won't restrain themselves, so they do what they want and claim that they are following Keynes. (I'm not saying that Keynes was correct, or that his policies should be followed. I only observe that politicians cover their corruption by citing Keynes.)

    Libertarians say that the market should decide both when a firm should grow large and when it should fail. This is a call for smaller, less powerful government in both good and bad times.

    As usual, politicians grant favors to businesses that kick back campaign contributions. This isn't a contradiction or result of Libertarian policy. Libertarians consistently want less powerful government, and their ideas would do this, but government is corrupt anyway.

    The big "problem" that you cite for Libertarianism is that companies would grow large. But, not from government meddling, instead from producing great wealth. Libertarianism tends to restrict corporate size through competition, but it certainly rewards the best competitors. If companies can't buy government favors, then they can't exercise evil influence on anyone (other than criminal behavior to be prosecuted).

    How does Libertarianism enable larger concentrations of private power? Corrupt government is doing a great job of doing this now by bestowing monopolies and favors through "regulation". A less corrupt government restricted to law enforcement would be better able to impose impartial oversight of business power.

    Neither Keynesianism nor Libertarianism can restrict political corruption. Only the electorate can do that. At least Libertarianism cheers in the right direction and proposes policy which hinders corruption, while Keynesianism calls for a more powerful, and so more corrupt government.

  2. Andrew:

    I kind of agree with you -- it does not make much sense to me that such enormous accumulations of wealth make real economic sense. It seems more likely that they are the result of a restricted marketplace rather than a free and open one, in my opinion. Any division of labor tends to hit a certain point of increasing complexity at which efficiency tends to decrease, so that the size of any corporation would seem to be capped at a certain level -- barring intervention of some kind.

    Nevertheless, it is difficult for me to argue with the larger point -- life is necessarily messy and imperfect, and whatever we want to say, corporations have in fact grown to the size that they can capture governments, and do. It is doubtful that a simple libertarian body of policy can really survive a collision with the real world any more than Keynesianism or even communism. The libertarians might last a bit longer, true, even quite a bit, but if this may be a criticism of those other philosophies (and it often is, and I think a valid criticism) then it must also be a criticism of this one.

    What is a libertarian to do then? I don't really have an answer. Gene Callahan has decided that the answer is a rejection of all ideology, since all ideologies are doomed to a death through simplification of a complicated reality. I think that is a useful and valuable thought, but again, is that the end of it? It doesn't provide so much in the way of practical guidance.

  3. Scott,

    The largest corporations are small, even tiny, compared to government. Each one must defend itself against government control, and it gains favors at the same time, if it can. Each one attempts to capture part of the regulatory regime put over it. If the regulatory regime were light and driven by a philosophy of the least regulation is the best, there would be little to capture.

    More regulation feeds into the plans of many large businesses. It imposes a complexity and cost that drives smaller firms out of business.

    Larger companies don't mind the extra costs, as long as everyone has to pay them and there is a tariff against foreign imports. Then, these costs can be passed along in increased product prices. Also, larger companies can lobby for gentler regulatory treatment, citing their large emloyment in a particular congressional district.

    Libertarianism is not anti-big business, but crucially it is not anti-small business. Keynesianism feeds into the idea that our wise social planners know best, and lulls the public into supporting regulation to protect against the "unplanned", free market. We get crony-capitalism along the way.

    The best ideologies are simplifications of empirical observation and good policy. The worst ideologies (eg. Marxism) are plausible sounding constructions which happen to give power to the people proposing them.

    Regulation of, by, and for Big Business

    12/06/10 - Econlog by Arnold Kling
    === ===
    Regulation in general, far from coming against the wishes of the regulated interests, was openly welcomed by them in nearly every case. As Upton Sinclair said of the meat industry, which he is given credit for having tamed, "the federal inspection of meat was historically established at the packers' request. ... It is maintained and paid for by the people of the United States for the benefit of the packers."

    In any case, congressional hearings during the administration of Theodore Roosevelt revealed that "the big Chicago packers wanted more meat inspection both to bring the small packers under control and to aid them in their position in the export trade." Formally representing the large Chicago packers, Thomas E. Wilson publicly announced: "We are now and have always been in favor of the extension of the inspection."
    === ===