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Tuesday, June 15, 2010

"The Economics of Libertarianism"

Ed Glaeser:

The Economics of Libertarianism, Revealed, by Edward Glaeser, Economix: It is both the best and worst of times for libertarians. On the plus side, real, live politicians who might conceivably get elected call themselves libertarians. On the negative side, true libertarians have lost their ancient luxury of being able to avoid any responsibility for the gaffes and errors of political leaders.
Libertarianism rests on two bedrock beliefs: human freedom is a great good and the public sector tends to screw things up. The first belief is based more on faith than empirical result; the second derives from millennia of human experience. The increased appeal of libertarianism today reflects a nonpartisan view that the public sector has been deeply problematic under either party. It is a backlash against President Bush as well as President Obama. ... Libertarians tend to think that the Bush years taught that all governments were flawed, not that everything would be better with a new leader who would expand the public sector. ...
I always find it refreshing to take a quick, clean intellectual shower in the cold, pure waters of libertarian thought, but I find myself most interested in the murky areas on the edge of libertarianism... Libertarians are rarely anarchists. Almost all of them believe in some form of state power, at the very least the protection of private property and the enforcement of contracts. Many of them, including Milton Friedman, are quite comfortable with larger exercises of state power, including the redistribution of resources to those who have less. ...
But once the need for public action is accepted, things start getting very muddy and we can’t rely on either a love of liberty or fear of the state for guidance. Consider the purely hypothetical case of a massive oil spill in the Gulf of Mexico. The traditional libertarian would argue that regulation is unnecessary because the tort system will hold the driller liable for any damage. But what if the leak is so vast that the driller doesn’t have the resources to pay? The libertarian would respond that the driller should have been forced to post a bond or pay for sufficient insurance to cover any conceivable spill. Perhaps, but then the government needs to regulate the insurance contract and the resources of the insurer.
Even more problematically, the libertarian’s solution requires us to place great trust in part of the public sector: the court system. At times, judges have been bribed; any courtroom can be influenced by the best lawyers that money can buy. Andrei Shleifer and I have argued that the early regulations were appealing precisely because of a sense that the courts couldn’t be counted upon to protect private property. ...

He says "Libertarians tend to think that the Bush years taught that all governments were flawed." I thought the lesson was a bit different. When someone stacks the deck to in favor of a particular outcome, we shouldn't be fooled into drawing general conclusions when that outcome is realized. Bush made his ideological belief about government self-fulfilling -- he stacked the deck in their favor (e.g. hiring incompetent people to head agencies like FEMA, filling regulatory agencies with people opposed to regulation, etc., etc.). Drawing general conclusions from an outcome that was forced by design, as libertarians have apparently done with Bush, does confirm preexisting biases, but it doesn't tell you much beyond that.

The lesson of the Bush administration is not that "all governments were flawed." We learned about an extreme, i.e. how bad things can be when a president sabotages government agencies by appointing cronies -- people who provided important political support -- to head important agencies rather than qualified, competent administrators. And the system was not quite as robust to this manipulation as I thought it would be. I had assumed the permanent staffs within these agencies would still go about their business as before, that the changes would be mostly superficial. But the ideological purge reached deeper into these agencies than I expected (and the Obama administration has been far to slow in taking action to reverse this).

The Bush administration was deeply flawed, no doubt about that, and it was partly (though not entirely) by design. But there is no general lesson here about all governments, only the particulars of an administration that did it's very best to validate libertarian beliefs about government.

    Posted by on Tuesday, June 15, 2010 at 10:17 AM in Economics, Market Failure, Regulation | Permalink  Comments (167)


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