A Couple of Criticisms of Libertarianism

I have a couple of thoughts on libertarianism that I can’t manage to squeeze a whole post out of. So, well, here they are.

Institutionalised law breaking

A major problem I have with the (minarchist) libertarian approach to law enforcement is that it fails to take repeated and systemic violation of laws into account. Libertarians, generally speaking, think that the state should prevent ‘force, theft and fraud‘, but they don’t seem to think this through: these three things are incredibly pervasive and do not only occur as isolated incidents that can be prosecuted on a case-by-case basis. When discussing problems with capitalism, libertarians seem to presuppose a virtually infallible police state where all the problems with regulatory capture melt away and any violations of these three are ‘outside’ the libertarian ideal.

The libertarian blind spot on this point can be seen in Milton Friedman’s view on corporations. Corporations have no social responsibility, except to maximise profit whilst ‘playing by the rules.’  But Friedman failed to realise that, like the regulations he disapproved of, corporations are happy to work around whichever ‘rules of the game’ happen to be in place. Moral considerations tend to melt away under competitive conditions, when things become ‘just business.’ Corporations have long history of forcefraud and theft, and as abstract entities these things simply don’t factor into their considerations. In a system based on private accumulation, they will use their profits to corrupt the legal system, hijack public funds, get the best lawyers, and make their operations as opaque as possible to avoid prosecution, no matter the charge. None of this is a bug of capitalism; it is a feature.

Fraud in particular is an incredibly common phenomenon, and characteristic of any market system – even grocery stores regularly mislabel products to trick consumers into buying more than they otherwise would. At a higher level, there are occurrences like the LIBOR scandal and general fraud surrounding the crisis. Furthermore, the Leveson Inquiry has revealed quite how many resources society has to pour into uncovering past wrongdoing by corporations. It is far more sensible to advocate various transparency standards and requirements that prevent these things from happening in the first place.

The consequence of this is that many regulatory agencies are actually compatible with libertarian aims for what is needed for a functioning market economy. Libertarian counters about regulatory capture simply beg questions about capitalism itself, questions which they surely don’t want to get into.

Governments versus markets, yet again

All too often, I see libertarians respond to a purported problem with markets by saying ‘well government has that problem, too.’ But this is a superficial treatment that can be used as a cookie cutter for any issue, without actually exploring it.

Sometimes we might identify a problem and ask how the government can alleviate it – e.g. information asymmetry can be partially dealt with by various transparency standards. However, more often the correct debate is not ‘x is a problem, what can government do about x’, but ‘x is a problem that causes y - what can government do about y?’

For example, The Radical Subjectivist asks what governments can do to eliminate uncertainty. The answer is: not a lot! Of course they can’t alter the fundamental fact that the future is unknowable. But this doesn’t really get us anywhere; what we really need to ask is what uncertainty leads to. And according to Keynes’ theories, it leads to a rate of interest that is too high to precipitate full employment; it also leads to the use of rules of thumb and waves of optimism and pessimism in financial markets. So policymakers should act to lower the rate of interest, and also stop trade when financial markets become too heated. Notice that at this point the issue we were originally discussing - uncertainty – has become largely irrelevant.

This can be seen particularly with libertarian economist’s reaction to behavioural economics. They respond by saying policymakers have the biases too (and the even more pathetic response that the people who study the biases also have them). But any real treatment of a particular bias will reveal that they create systemic problems that can be identified and remedied through alternative means – for example, Type 1 and Type 2 thinking apply to all people, but somebody who is using Type 1 thinking can easily be exploited by somebody using Type 2 thinking. This is a big problem when signing contracts and requires that people are protected when doing so. The same person who writes the law (and writes the book about the bias) will have the bias. But this doesn’t impede their ability to deal with it on a systemic level.

Of course, it is entirely possible that government cannot do anything about problem ‘y’, or that it would be too expensive, intrusive or what have you. It’s also true that policymakers themselves will suffer from certain biases that will affect their decisions making. But libertarians cannot dismiss every purported problem with markets by suggesting that it also applies to government – this does not engage the specific issue at all, but is a superficial attempt to escape important challenges to their reasoning.

About these ads

, , , , ,

  1. #1 by Ron Ronson on July 29, 2012 - 2:51 pm

    There are 2 ways that people can work together to get things done 1) via mutually agreed co-operation and 2) by one person using force to make another do things they wouldn’t otherwise do.

    As states and governments are not voluntary organizations and pass laws that mandate certain behaviors on the population it is obvious that they operate in the second way. They are a vehicle for one group of people to use violence or the threat of violence to get another group of people to follow their demands. This goes way beyond protecting individuals from crime. Any alleged benefits from the state would surely also be available from voluntary association if the benefit was real.

    Of course private organizations can also use violence. Libertarians believe that the free market would throw up organizations that allow the individual to protect themselves from such violence better than any partial protection the state could provide – whether this violence is common-or-garden crime or more sophisticated corporate crimes. In addition libertarians also tend to believe that this latter type of crime actually thrives better with a state to protect it.

    • #2 by Unlearningecon on July 30, 2012 - 3:24 pm

      This just strikes me as fairly naive reasoning that doesn’t really make a lot of sense. The nature of power – private, or otherwise – is that institutions cannot just spring up to protect people, primarily because people are being coerced. You apply this with the state but are blind when its private.

      Really your comment just depends on a lot of unsupported assertions about what would happen, when, as Min points out, history tends to disagree.

      And as for consent: the state isn’t the only thing I didn’t consent to. I didn’t consent to the English language, the existing property distribution, being born at this point in history, my parents, the physical laws of reality, and a whole host of other things.

      • #3 by Ron Ronson on August 2, 2012 - 7:05 pm

        You appear to be arguing that as there a lot of things out there that “just are” that one has little control over that one shouldn’t try to change anything but just passivity accept them. Luckily the leaders of the American revolution, those who led the opposition to slavery and others who led change in history didn’t share that attitude,

        The point of Libertarian ethics is that it views private and state violence on an equal level and supports the individual in their resistance to both. I don’t get the point about the 19th century – seems there was plenty of state violence around and it was quite successful in quelling any opposition – am I missing something ?

        Given the monstrous crimes committed by states throughout history I am surprised to find it so widely supported.

      • #4 by Unlearningecon on August 2, 2012 - 7:29 pm

        seems there was plenty of state violence around and it was quite successful in quelling any opposition

        State violence in the interests of capitalists. And also violence by thugs hired by capitalists, which continues to this day.

        The problem with libertarianism is that it sees states as some sort of homogeneous entity that exists across state and time, and separate from the societies that govern them, hence your statement:

        Given the monstrous crimes committed by states throughout history I am surprised to find it so widely supported.

        Conversely, Marxists tend to see states as a reflection of the most powerful class interests at the time (which obviously conflict, and where influence depends on institutions). In capitalism’s case, the state is not separate from capitalism but the primary instrument through which it operates. This has been true throughout history – at capitalism’s inception, peasants were systemically dispossessed from their land and other means of self sufficiency so they would be forced into wage labour. There is not a time when capitalists have not been in bed with the state, and in a system based on profit there will always be some with disproportionate influence, so this will always be true.

        You are right to say that people should not always accept things as they are. But any meaningful revolution will not be for capitalism and against the state, but against the capitalist state.

      • #5 by Ron Ronson on August 3, 2012 - 1:58 am

        There have clearly been some pretty horrible things done by states that were trying to enforce some form of oppressive interventionism within a system that was fundamentally capitalist – both the US and British states have supported atrocities in recent decade and these are allegedly liberal democratic states.

        However socialist states have undoubtedly committed crimes at least as bad as these in support of an anti-capitalist ideology. So I don’t see how you can argue that state-oppression is somehow uniquely linked to capitalism.

        What state-violence always has in common is it is used to support the interest of the bureaucracy who control it, and the existent economic system is secondary. Look at economies that have transitioned from “socialism” to “capitalism” – often the same state apparatus has remained in place.

        I believe it is possible to have a society based on co-operation and not oppression – obviously we are a million miles from such a society right now but I believe that a vision of such a society needs to be present in all economic debates if we are to be on the side of progress.

      • #6 by Unlearningecon on August 3, 2012 - 3:09 pm

        There have clearly been some pretty horrible things done by states that were trying to enforce some form of oppressive interventionism within a system that was fundamentally capitalist – both the US and British states have supported atrocities in recent decade and these are allegedly liberal democratic states.

        Correct. However, many of these atrocities were done in the interest of capitalists, either to gain resources or lucrative contracts, keep communism and socialism down, or keep workers and unions in check.

        So I don’t see how you can argue that state-oppression is somehow uniquely linked to capitalism.

        I don’t.

        Don’t you see that ‘the state’ does not exist? In a reductionist sense, it is simply a web of conflicting interest using the tool of legislation to advance various interests. Generally speaking, whoever is the most powerful will have the most influence – under capitalism this is generally capitalists, under feudalism it was landlords (although they still retain a lot of influence), under monarchy it is, well the monarchy. The point of socialism is decentralized power (I know that conflicts with everything you think you know about socialism, for which I don’t blame you) so that one class does not have more influence than another and the state works in everybody’s interests as best it can.

    • #7 by Ron Ronson on August 3, 2012 - 4:58 pm

      “socialism is decentralized power”

      It would be totally fine by me if a society based upon co-operation and not coercion led to a system of decentralized socialism. However having studied various theories and philosophies of stateless societies I have come to the conclusion that anarcho-capitalism is the one most likely to emerge and be stable. Austrian economics combined with libertarian ethics provides a theoretical framework for how it might work. I have simply not seen anything so comprehensive from the libertarian socialist side.

      • #8 by Unlearningecon on August 3, 2012 - 5:02 pm

        I have simply not seen anything so comprehensive from the libertarian socialist side.

        Marx and his followers? Chomsky? Proudhorn? There’s a ton of this stuff, and having dabbled in both, I can assure you it makes far more sense than Mises.org articles, which I find generally based on assertions about the free market and a very rose tinted reading of history (e.g. their appeals to medieval Iceland and the Wild West as shining examples of anarcho-capitalism).

      • #9 by Ron Ronson on August 3, 2012 - 5:57 pm

        Marx’s philosophy led directly to Lenin, Trotsky, Stalin, Mao and a host of other Communist murderers plus his economics is total bunk.

        Prohdhon is a hero of mine but I think his model breaks down because of a lack of sound economic theory.

        Chomsky – maybe I need to read him – a quick check on Wikipedia looked interesting.

      • #10 by Unlearningecon on August 3, 2012 - 7:41 pm

        We risk derailing but I’m going to take a leap and say you haven’t read much or any marx, or much of the history of socialism. That’s fine but try not to act like you know it with statements like “his economics is total bunk.” Marxism is more of a way of thinking about the world than a blueprint or economic theory.

      • #11 by Ron Ronson on August 4, 2012 - 3:25 pm

        I have read Marx and I believe a very clear line can be traced from his writing to the political philosophy and actions of Lenin and Stalin – but thats way off topic. I would love to debate Marxists economics but I will wait until you do a post on that topic before getting into that. (BTW: Didn’t Straffa, or one of his followers, use a similar methodology to the one he he used again the neo-classicals to “debunk” Marxists labor theory of value ?)

  2. #12 by Min on July 29, 2012 - 4:53 pm

    “Libertarians believe that the free market would throw up organizations that allow the individual to protect themselves from such violence better than any partial protection the state could provide – whether this violence is common-or-garden crime or more sophisticated corporate crimes.”

    The history of the 19th century belies that utopian belief.

  3. #13 by JMRJ on July 29, 2012 - 6:10 pm

    Your points are overall valid, such as noting that the rule of law is not a simple thing. Self-described Libertarians seem to be very simplistic in their vision of law would function in a government-free environment. They tend to be absurdly utopian.

    Then again, I have at the very least libertarian sympathies. So I must quibble.

    Do not assume, for example, that because we live in an age where even grocery stores regularly engage in fraud that it is always this way, or that it must be this way. Without viewing the past through rose colored glasses it is fair to say that at least the premium put on honesty has been higher at other times. At least officially.

    Moreover, if fraud or any other criminal behavior becomes truly “systemic” and “incredibly pervasive”, then “law enforcement” really doesn’t have any answers for that. You probably don’t like her ( not that I really do either) but Ayn Rand had a rather eloquent soliloquy in one of her novels to the effect that such a breakdown of morality is really an unrecoverable breakdown of civilization. Picking people to prosecute at that point is random, arbitrary and gratuitously cruel, since we are just whistling past the graveyard at that point.

    Beyond that, though, we simply cannot proceed on the assumption that everyone is a fraud, everyone is a crook, everyone is corrupt and that it will ever be thus. We must make the effort. We cannot give ourselves over to it in a facile cynicism about how people behave, as many economists do.

    “Law enforcement” can only function on the margins of a society that largely observes the law, tweaking things here and there. A society that repudiates its obligation to observe the law has already become uncivilized and no amount of law enforcement will make any difference.

    This hints at the idea that minarchists are onto something. Small government would tend to be the rule for a well functioning society, just as law enforcement – which is done by government – cannot disappear entirely, but then again cannot get too pervasive either. Perhaps the answer is as simple as Aristotle’s maxims regarding the means between the extremes.

    And by the way, these are the kinds of questions where you’ll have to accept that empiricism is of little value. This is about “oughts”, not “is’s”

  4. #14 by Isaac "Izzy" Marmolejo on July 30, 2012 - 1:52 am

    Keep in mind though that the ‘uncertainty problem’ that I raise is not itself a libertarian critique. Sure libertarians may use the argument, like Littlechild or Wiseman, but it is also expounded by non-libertarians like Lachmann (who would probably be critical of the movement) and Shackle (who is unarguably a Keynesian). I don’t know if I consider myself a libertarian,  I replied to a comment over at Lord Keynes’ blog asking if I was a libertarian, I simply responded, ‘some people consider me one, some people don’t.’ 

    • #15 by Blue Aurora on July 30, 2012 - 2:37 am

      While I’m not a fan of libertarianism, I have other questions to ask.

      Out of curiosity Isaac, have you read any of the papers jointly written by Marcello Basili and Carlo Zappia?

      If not, I recommend that you do so, as you seem like you would be interested in them. Here are their titles.

      1.) “Ambiguity and Uncertainty in Ellsberg and Shackle” (Cambridge Journal of Economics)
      2.) “Shackle and Modern Decision Theory” (Metroeconomica)
      3.) “Keynes’s “non-numerical” probabilities and non-additive measures” (Journal of Economic Psychology)

      Also, Unlearningecon, could you please respond to the last few e-mails I sent to you?

      • #16 by Isaac "Izzy" Marmolejo on July 30, 2012 - 3:15 am

        Thanks for the articles… I’ll give them a read when I get a chance

    • #17 by Unlearningecon on July 30, 2012 - 3:06 pm

      Yes, I didn’t intend to single you out as a ‘libertarian,’ but your post is what sparked that thought and I thought it was a good example of somebody trying to escape the markets versus governments framing but still being trapped by it. Uncertainty itself also demonstrates my point effectively.

  5. #18 by moiracathleen (@moiracathleen) on July 30, 2012 - 3:51 am

    One of your best posts UL. The fraud problem is an issue that needs more attention. I think that too many people have underestimated pervasiveness and the damaging impact. I agree that fraud is systemic and pervasive. Indeed, I would say that the government seems to reward institutions that engage in fraud while punishing the honest companies. Take a look at the settlements between US Regulatory Agencies and the largest banks. Are these punishments? The purpose of punishment is retribution, deterrence, and rehabilitation. How are any objectives met when the regulator allows the offender to pay less than 1% of what the offender makes by selling toxic debt instruments to pension funds and mutual funds? Clearly these fines are not retribution as they are by no means proportionate to the damage and injury caused by the fraud. It is objectively true that the penalties are not an effective deterrent because the same institutions continue to engage in fraud.

    I have to disagree John’s comment: “Law enforcement can only function on the margins of a society that largely observes the law.” Law is a prediction of what a bad man will do. If law instead is viewed as an obstacle to growth, then the object and purpose of the law is undermined. Laws that predict a bad will commit fraud probably do create economic inefficiencies, but these are minimal in comparison to the economic inefficiency the bad man causes when he commits a billion dollar fraud that empties pension funds, mutual funds, and other investments. Bad men caused the financial crisis. The law was restrained by this idea that the market could effectively restrain bad men. We have plenty of laws, but these mean little if the people charged with enforcing those laws are corrupted.

    Additionally, most of the problems with fraud in the US financial system result from deregulation. The mantra is always the same: regulations are impeding US competitiveness. See for example the SEC findings that supported adoption of the Broker Dealer Lite Rule for the largest most systemically important financial institutions, including Lehman Brothers: “The SEC conducted its own study of OTC derivative instruments before adopting its broker-dealer “Lite” regulations. It found that these transactions involve a wide range of commodities and financial measurements. OTC derivative instruments were being used by corporations and governments to lower funding costs and to manage risks associated with fluctuations in exchange and other rates. ….The SEC noted that the traditional broker-dealer regulatory structure was impeding competition among OTC derivatives in the United States.”

    Additionally law cannot function in a society where the government is corrupted.
    A key problem today is that most people presuppose that governments cannot be corrupted. There is this notion that only governments in developing countries can be corrupted. In fact, it is pretty evident that there is a corrupting influence at the highest levels of the US Government. Wage Suppression Endorsed by US Government for benefit of US Corporation (not the US) http://www.thenation.com/article/161057/wikileaks-haiti-let-them-live-3-day and Regulator directs CFTC Judge to Rule Against Investors http://www.ritholtz.com/blog/2010/10/judge-cftc-corrupt-wendy-gramm-criminal/ (Like a King’s Court) A government can always be corrupted. And when that corruption goes undetected for as long as it has today, then there are key structural problems that need to be fixed. In the United States, the obvious structural problem is that there is too much power consolidated in the central government. All of the deregulation occurred at the Federal level and preempted state laws designed to protect people from fraud. And the United States will continue its economic decline unless and until people start talking about the real cause behind the financial crisis: a corrupted government that actually hands out rewards for fraud shrouded in words like “emergency,” “bailout,” “competitiveness.” The US government has placed the immediate needs of the day in front of the long future without asking the people whether this is acceptable and instead telling them that it is necessary.

  6. #19 by Alister on July 30, 2012 - 6:39 pm

    All perfectly valid questions, and none of which anyone can answer easily, but I would suggest these 3 short notes if you’re interested in a means to further wrap your head around this topic; it’s clear you already know quite a bit about all this! :-)

    http://mises.org/journals/jls/3_2/3_2_3.pdf

    http://economics.org.au/2011/08/government-is-in-a-state-of-anarchy/

    http://mises.org/daily/5270

    • #20 by Unlearningecon on July 30, 2012 - 6:51 pm

      Those look quite good – I’m not a massive fan of Mises.org, but they look OK. Though the immediate thing that strikes me is the overreductionism: sure, men will always have problems. But social/market/institutional forces beyond our control can be shaped to combat this.

      • #21 by Mike Huben on August 22, 2012 - 11:05 pm

        I really don’t see why anybody would give that first one the time of day.

        He talks about government as a third party that can intervene: but anarchy has myriad third parties that can intervene.

        He talks about how government is above judgement: evidently he is ignoring tripartite government and balance of powers, Every person comprising the US government is ultimately answerable.

        I could go on, but sheesh.

      • #22 by Unlearningecon on August 23, 2012 - 4:36 pm

        ‘Good’ for Mises.org is not the same as ‘good’ elsewhere.

  7. #23 by jubelperser on July 31, 2012 - 6:24 pm

    “…Furthermore, the Leveson Inquiry has revealed quite how many resources society has to pour into uncovering past wrongdoing by corporations. It is far more sensible to advocate various transparency standards and requirements that prevent these things from happening in the first place…”

    As someone whose education lies more in the business realm and who has a personal interest in “lean management” with it’s focus on designing processes and systems that get quality right the first time, (instead of building a faulty product and then fixing it later in the process) this immediately strikes me as very true.
    Libertarian objections to gov. regulations and controls often argue on a purely moral and absolute basis (“Dude, you are limiting individual freedom!”). But a very important aspect is also the question of efficiency and effectiveness (with which libetarians, as market apostles, are so concerned with).

    Instead of fixing force, theft and fraud later through court decisions, it can be much more efficient to prevent them happening in the first place (as you said). Instead of every individual trying (emphasis: trying) to figure out the terms of a business transaction for him/herself, gov. regulations can massively bring down “transaction costs” by standardizing transactions and setting up certain minimal requirements – leading to increased efficiency and effectiveness.

  8. #24 by Unlearningecon on July 31, 2012 - 6:58 pm

    Jan, that was a fine article, but it’s completely off topic.

    jubelperser, thanks for a good comment.

    moira and John – maybe it’s just me, but I don’t even see how your comments are contradictory. Both good comments in my opinion.

    • #25 by Jan on July 31, 2012 - 10:02 pm

      Excuse me Unlearning economics.I post it the article on wrong page site by mistake i noticed.Ah internet blog are sometimes little confusing for old dudes that not so used to the blof world i guess!But a excellent work you do unlearning,and always interesting blogs!Cheers and be well!

      • #26 by Unlearningecon on July 31, 2012 - 10:25 pm

        Fair enough, and thanks for the kind words.

Follow

Get every new post delivered to your Inbox.

Join 829 other followers