Libertarian economics: A philosophical critique
The focus of my research as a political philosopher is on matters of economic justice. I ask questions such as: Are markets consistent with justice? Is freedom enhanced through economic exchange? If so, why, and if not, why not?
One position that I have held for most of my career is that free market, or libertarian, thinking suffers from major conceptual and moral failings. While my efforts have centered on the work of various 19th- and 20th-century proponents of free markets, in the interest of getting a contemporary look at this thinking, I recently sat down with the platform of the American Libertarian Party.
What I found did not surprise me. The platform suffers from the very same factual and conceptual difficulties that we find in the writings of the political philosophers that inspired it.
That’s a strong claim, so let me defend it by examining a few points from the platform.
Looking at the platform
Let’s start with this one:
“A free and competitive market allocates resources in the most efficient manner.”
This is wishful thinking.
Markets can be inefficient for many reasons. Sometimes the costs or benefits of market transactions fall on people who are not in the market. For example, your purchase of a vaccine keeps me healthier, while your dumping waste in the river that runs past my house has the opposite effect. Such occurrences, known as externalities, are considered market failures in that resources have not been allocated efficiently.
To correct such failures and make markets efficient, governments intervene by providing things like courts, roads, police and fire departments, as well as regulations requiring polluters to pay for their environmental damages.
Other types of market failures are caused when one or a few firms control the price and output of a good or service, or when consumers are not given adequate information to make their purchases, as, for instance, when investors are not sufficiently informed of the risks of their investments. Here again, the solution in most cases is some form of government intervention. Monopolies are broken up. Firms are forced to disclose relevant consumer information.
The problem for libertarians, and the reason they need to believe that markets are always efficient, is that – according to their platform – they also believe:
“The only proper role of government in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected.”
The difficulty with this statement is not just that it denies the reality of market inefficiencies. Of greater concern is how drastically it underestimates what is required to protect property rights.
How charitable can we be?
Consider, for example, the cost of maintaining a stable, peaceful society – a society in which those who fall on hard times do not threaten the system as a whole. And also consider this statement from the libertarian platform:
“The proper and most effective source of help for the poor is the voluntary efforts of private groups and individuals. We believe members of society will become even more charitable and civil society will be strengthened as government reduces its activity in this realm.”
The problem here is that there is simply no evidence that private charity has anywhere near the capacity to alleviate the sort of poverty that confronts many parts of this country. The more than 40 million people below the poverty line would simply overwhelm organizations like the Red Cross, whose budget is about one 200th of what the federal government provides for welfare and Medicaid.
Natural disasters alone far outstrip the capacity of churches and secular charities. FEMA, with its US$14 billion budget, would be a libertarian casualty.
If it isn’t the proper role of government to aid the poor, and private charities can’t handle it, then what? The short answer is that the people who do have property might not have it for long. Look to history. We see property crimes rise predictably with every downturn in the economy. If you take away public assistance, it stands to reason that whatever money you may save you’ll likely lose many times over in increased spending for policing, courts, prisons and other institutions that protect property owners.
Indeed, I would argue that welfare is a bargain. It may be, to quote again from the platform, that “All efforts by government to redistribute wealth … are improper in a free society,” but they are certainly not improper to one in which people are secure in their belongings.
There are a number of other basic fallacies in the platform. I’ll close with two.
First: “Libertarians would free property owners from government restrictions … as long as their choices do not harm or infringe on the rights of others.”
The difficulty here is that it is precisely to protect the rights of others (and the environment) that we have the regulations we do.
Second: “Governments are unaccountable for damage done to our environment and have a terrible track record when it comes to environmental protection.”
To be sure, governments around the world have been far less than perfect when it comes to protecting the environment. Yet even a modest comparison to private efforts – where, absent regulations, there are few if any incentives to act responsibly – demonstrates that public oversight is the only reasonable option. Leaving environmental decisions to the Exxons, GEs and BPs of the world would, as history has shown, have catastrophic consequences.
These Libertarian economic positions are a long way from those espoused by the Democratic Party. While there may be some overlap with the Tea Party cohort, most mainstream Republicans would also reject these extreme views. The bottom line is that until Libertarians give more thought to economic reality, they will simply not be a reasonable electoral choice.