The Libertarian Vice

Analytical vice, that is.

The libertarian vice is to assume that the quality of government is fixed.  The libertarian also argues that the quality of government is typically low, and this is usually the bone of contention, but that is not the point I wish to consider.  Often that dispute is a red herring.

If the quality of government is fixed, the battle is then "government vs. market."  Not everyone will agree with libertarian views, but libertarians are comfortable on this terrain.

But sometimes governments do a pretty good job, even if you like me are generally skeptical of government.  The Finnish government has supported superb architecture.  The Swedes have made a good go at a welfare state.  The Interstate Highway System in the U.S. was a high-return investment.  In the area of foreign policy, we have done a good job juggling the China-Taiwan relationship.  Or how about the Aswan Dam for Egypt?  You might contest these particular examples but I assure you there are many others.

The libertarian approach treats government vs. market as the central question.  Another approach, promoted by many liberals, tries to improve the quality of government.  This endeavor does not seem more utopian than most libertarian proposals.  The libertarian cannot reject it on the grounds of excess utopianism, even though much government will remain wasteful, stupid, and venal.  More parts of government could in fact be much better, and to significant human benefit and yes that includes more human liberty in the libertarian sense of the word. 

Libertarians will admit this.  But it does not play a significant role in their emotional framing of the world or in their allocation of emotional energies.  They will insist, correctly, that we do not always wish to make government more efficient.  Then they retreat to a mental model where the quality of government is fixed and we compare government to market.

It is possible to agree with the positive claims of libertarians about the virtues of markets but still think that improving the quality of government is the central task before us.  One could love markets yet be some version of a modern liberal rather than a classical liberal.  This possibility makes libertarians nervous, thus their desire to fix the quality of government in advance of making an argument.  (For one example of this, see Glen Whitman’s commentary.)

Libertarianism and modern liberalism differ in many regards, and usually I am closer to the libertarian point of view.  But I am also a contrarian by nature.  If you want to make me feel more like a modern liberal, just go ahead and commit The Libertarian Vice. 

To be fair, here is my post on the modern liberal vice.

Addendum: Here is a look at drug policy from both libertarian and liberal points of view.

Comments

Who wrote this post? Was it Tyler or Tyrone?

David Hecht makes a good point but I'd like to add that it isn't just the thread of competition but also the threat of unemployment (for the individual worker) and bankruptcy (fort he organization) that provides the whip to spur productivity.

"If there's only one guy who can do the job--be he the government or a private contractor--it will be done less efficaceously and more expensively than if there are two or more competing for the same job. Period. I never found an exception to this rule, in fifteen years of Federal service"

Yep.

Thanks Tyler for expressing these thoughts. They are very similar to my thoughts on the use of government and usefulness of markets and competition. There is no doubt that a realistic survey of 'how we can get better' will not have market solutions exclusively.

One more thing you might add to this critique, and one I've been thinking a bit about latey, is applying the concept of risk adjusted returns to our overall growth. Libertiarians, almost by reflex, argue that going to a pure market based economy would increase our overall rate of growth and therefore, in the long run, we are all much better off. I think this would be likely result of implementing the libertarian world-view.

However, any sophisticated market practitioner doesn't just care about absolute returns. They are primarily concerned with risk adjusted returns. They take into account the risk of ruin. They look at what the odds are of underperforming for extended periods. They consider the fact that they would prefer 4% a year for three years over returns of 20%, 20% and -20%, even though the latter gives a slightly better overall return.

Whats the alpha of Libertarian thinking?

What is the point here? Let's say that government did a good job on "X," whatever X is. Doesn't the libertarian just have to say, "Yes, that's true, but it could have been done better and more cheaply outside of government," and then you're back to the original argument.

Moreover, the argument seems to have a giant hole in it. That is, how do you determine ex ante which things government will be so good at that we want it to do those things? I'm not sure how you answer that question, so I think the libertarian position, that the government should do as few things as possible, is not displaced at all by this argument.

The quality of government may not be constant, but is it something you or I can choose? Everyone agrees that the federal income tax is ridiculously complicated, but it can't be reformed. It is what it is, because democracy gives more power to concentrated interests than to dispersed interests.

It is amazing, um...how many of these comments take the quality of government as fixed!

Tyler, I'm beginning to appreciate just how contrarian you are. The basic point of public choice theory is that government quality is "fixed" in the sense that I think you're using the word: not able to be changed by human intention. Now, if you're *really* contrarian, you'll start arguing that the quality of the market is also not fixed. For example, public goods don't *have* to be underproduced -- not if we don't want them to be, not if we consider improving the quality of the market to be the central task before us.

Well said.

To take one recent example, the city of Los Angeles owns the Water & Power utilities, so Los Angelenos were not taken to the cleaners by Enron and other crooks during the electricity deregulation disaster of recent years. (Unfortunately, Los Angelenos got stuck with bailing out other parts of the state.)

It was blatantly obvious that the market would not work well in this situation due to the "last mile" natural monopoly problem, but economists failed to warn the state legislature.

This is nothing compared to the damage done to Russia in the 1990s by libertarian economist advice, even when the economists were just naive and not corrupted like Andrei Shleifer.

Thank you for a great post that helped me understand how to think about these matters -- or in some cases how I already incoherently thought. I'll be linking to it at chicagoreader.com.

I think Tyler's comments are right on. Its especially interesting when certain libertarians, who appear to be freaking out in response to Tyler's argument, assert that "market solutions" are "always" superior. First of all, we should note that the term "always" is an extremely strong word. Second, we should note that the concept of superior depends on how we measure an outcome. Person X can think that outcome A is superior to B. Person Y might think that B is superior to A. Ultimately, what outcome is "superior" is a function, to some degree, of personal preferences. It is also a function of the weights we assign to the various results that constitute outcome A versus outcome B. The point here is that the claim that one approach is "always" superior to another indicates that the person has not given much thought to what "superior" really means. It is not one thing - and even if it was, it is incredibly foolish to think that one can assert this in "all" cases when one does not even have a grasp on the infinite number of possibilities.

Lets examine this claim. Market solutions are always superior. Okay. So, should there be a market solution to the protection of private property rights? What does that mean? That the judge is paid by the parties in a dispute? That the person who is willing to pay the judge the most wins the case?

We know from Coase that market solutions are not always superior to command with a firm. When a firm outsources, it is essentially using market transactions. When it produces things in house, it is essentially using command. The fact that corporations use command and not just the market should indicate to any rational human that corporations don't always believe that the market is more superior (or more efficient). Sometimes it makes more sense to produce in-house, rather than outsource.

Why should it be any different in the case of government? Surely, certain actions that we want to be done on behalf of the people are better done via command and others are better done using market mechanisms. The free market has already demonstrated that sometimes command is superior in certain contexts - otherwise there would be no such thing as an employee (only independent contractors).

These silly libertarians, and they do render themselves silly with their panic in response to Mr. Cowen's sensible arguments, fail to see that "always" is a very difficult argument to make and is usually wrong. In this case especially. As is often the case, there are tradeoffs with respect to various approaches to solving problems and evaluating these tradeoffs is not as simple as libertarians would imagine.

The Interstate Highway System in the U.S. was a high-return investment.

The Economist isn't so sure.

I used to work in the Oil Industry for about 6 years out of my 24 years of business experience. This has got to be the most wasteful, lazy business that was ever created. Much more than any government run business. The levels of sloth and graft are astronomical. I was so personally offened by the levels of these sins that I had to leave. I've never had a government job but I can't imagine that the people that work at it are dull and corrupt as the people in the Oil business.

Libertarians don't want to make government more efficient, it is true. They look at the example of Milton Friedman and income tax withholding: maybe it was really needed at the time, but by making it efficient it allows that program to continue indefinitely. Libertarians don't want government programs, even of improved quality, to continue indefinitely. If libertarians ignore quality, it is because they consider there to be a trade off between improving quality now and eventually getting rid of the system in the future. The delta between a market solution and an improved quality government solution is usually high enough in the mind of a libertarian to make it worth ignoring the improved quality in return for a small chance of real market reform. They realize that an efficient government isn't going away and therefore find efforts in that direction to be counter-productive.

It could be that the best approach is to ignore that supposed trade off between efficiency and eventual market reform and get people used to listening to market oriented ideas about incremental improvements that work. It is highly debatable.

"One could love markets yet be some version of a modern liberal rather than a classical liberal."
Seems to me that this describes Brad DeLong pretty well...

The terrible mistake that libertarians make is allowing diversion to topics like this. Sure, the USPS is good enough, even though UPS shows how much better it could be. But who cares about USPS? We should focus on the few programs that do the most harm. And those don't do harm because the government is less efficient; they are programs whose main focus seems to be to do harm. I'm thinking of the war on drugs, zoning, etc.

But a large example where Tyler is right is healthcare. If the US government would admit that it's running healthcare and take it over, that would be an improvement, even though it would not be as good as a market.

Interestingly, both Max and Douglas Knight seem to have had good insights however, despite their appearent opposition and (prehaps) Max's exaggeration (few people actually leave Europe for less restrictive locales)

When I endorsed Kerry for President-- partly on the grounds that the Bush administration was making government quality much worse-- a commentor on Kevin Drum's reply post said

"It's better to have a big competent government that admits it's big, than a big incompetent government that pretends it's small."

I still think there's something important to that.

Dr. Cowen,

When I see people devoting large amounts of their time, perhaps the bulk of their professional lives to advocating changing something, the last thing I'd ever ascribe to those people is the belief that the attributes of that thing are fixed!

The quality (defined loosely as Pareto-efficiency*liberty) and quantity of government are not independent. Our Constitution was designed by people who pictured a national government of significantly (exponentially) narrower scope than the one we have. (Similar points apply to state constitutions.) The whole point of the Progressive movement (and Woodrow Wilson's ideology) was that traditional Constitutional government could not produce high-quality decisions in the brave new world where the quantity of government "needed" to be much bigger.

I can guarantee you that the performance of Congress, in terms of both accountability, decision-making, and oversight would improve drastically if the scope of legislation were cut back to what was considered constitutional in 1855. The attention available to both legislators and the public has not expanded on a per/person basis, but the amount of stuff they deal with has gone up by orders of magnitude.

Reducing the scope of government might not be optimal if you think that even low-quality interventions are better than the alternative, but the average quality would certainly go up. There's a good reason why corporations in trouble tend to cut back their activities to a smaller core and spin off or shut down peripheral operations. Top management's attention span is finite.

Citing examples of "good" government projects makes me understand the wisdom of Frederick Bastiat. The author really needs to read "That Which is Seen and That Which is not Seen".

Libertarianism requires three bases to be justified without sounding like an idiot.

1. Initiating force is not nice.
2. Markets work well, generally.
3. Government is dangerous.

All three propositions are true as stated. However, raise them to categorical statements and you sound ridiculous. To justify libertarianism on only one of these bases does require raising the basis to the categorical.

For example, the Libertarian Party's membership oath replaces number 1 with a pledge to never advocate the initiation of force for any social or political goal. Such rules out all eminent domain and taxation -- even moderate taxation for national defense. This has resulted in the LP being a fringe borderline anarchist party with continuous debates internally as half defends the absurd positions that extend from this categorical basis and the other half tries to do real politics. Taken to heart completely, this axiom can lead to isolation from the human race and pre-K social skills. Just look at some of the anarcho-capitalist blogs. L. Neil Smith is perhaps the most extreme example but greater thinkers like Murray Rothbard and Ayn Rand slid down this path.

Harray Browne tried to take #2 to the categorical degree, writing a book on "Why Government Doesn't Work." As you showed above, this is a silly position to take.

Basis 3 is essentially public choice economics when taken to a sane degree. The case against successful programs like the space program is that they can lead to unsuccessful programs. Or, the case against city control over garbage collection is less that it is a violation of natural rights, or that is is necessarily inefficient (though in some cases it is). The case against such is that by having the government collect the garbage, you have added more government workers to the voter rolls, which corrupts the system.

You cannot justify libertarianism on basis 3 alone unless you go the tinfoil hat route. The extreme use of this basis are those who push conspiracy theories.

"The Interstate Highway System in the U.S. was a high-return investment." Really? It seems to me clear it was a disaster. It helped create and encourage lifestyles based on long-distance travel in motor vehicles powered by petroleum. But no bad consequences have followed from that ... right?

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