THE LIBERTARIAN ENTERPRISE
Number 491, November 2, 2008
"The next two to eight years
are going to suck like a Hoover"
Special to The Libertarian Enterprise
Recently, Newsweek and Slate published an article ("The Libertarians' Lament") that waffles between blaming libertarians for the collapse of the economy and pitying them for their intellectual immaturity. Displayed in this article is a misunderstanding of the market and the ethics put forth by libertarians.
The free market does not have its own idea about how the economy should be run. The free market is not a monolithic competitor to the government's centrally planned decisions, but the exact opposite. It is the result of millions of voluntary interactions between willing participants. Libertarians do not have a "heroic view" of capitalism. Instead they find it the only moral way to make decisions. Each is responsible for the decisions that affect his capital, free of the coercion of government and others.
Capitalists that risk their own funds face an endless array of consequences, from losing money to imprisonment to public outrage. Government, on the other hand, can affect the situation by stealing money in the form of taxation, inflation, and money supply manipulation. Government does not answer for any of these transgressions and politicians are shielded from the consequences of their actions. Yet, the author's premise is that government action is to be trusted to save us from capitalism. I find that a staggering conclusion.
Even without a background in economics, the following chain should be easy to understand:
Since this is a shell game, the consequences of these decisions eventually have to be endured, which is happening now. At every point, the underlying problem is caused or exacerbated when one entity takes a risk where they will benefit if it goes well and where consequences are externalized if it goes badly. Though lenders and borrowers engaged in questionable behavior (in this example, by making and accepting bad loans), the only consistent offender is government:
Every one of these proposals, which boils down to rewarding the bad behavior, has government at its core. Apparently, to solve the problem, all we need is another corrupt government organization, armed with the club of coercion without the burden of risk, making decisions about other people's money.
At no point in this situation do I see the failure of libertarian proposals. Even when the bad behavior was not on the part of government, it was made possible by government through mechanisms that would not exist in a truly free market. For example, when lenders overextended themselves by making bad loans, they did so because the guarantees from government shielded them from the inevitable consequences.
If there existed a free market in the country, some of these failures would have been prevented. For example, when the market signals showed that bad loans are... bad loans. Others would have happened on a smaller scale, in smaller bumps, earlier in the process, signaling the market against future poor decisions. In any case, absorbing the failures of some with others' money is exactly the behavior that started this situation.
To start, government steals from the citizens to exert power over others. There are no consequences for the individuals involved and all of the costs are borne by citizens. Then the government creates a moral hazard by offering to push the risks of bad decisions onto the citizens as well, as it did by guaranteeing loans.
The statement "markets can be irrational, misunderstand risk and misallocate resources" is based on the premise that the author knows what the outcome "should" have been. He does not have this answer and neither does the government. What "should" happen is not a predefined target for the market to hit, but instead is defined by the market and distorted by government intervention.
I guess he's rightif we could just get rid of those crazy libertarians, everything would be fine... as long as the rest of the political parties and government go too.