The Insidiously Seductive Nature of Libertarian Philosophy

Posted by Bob Lord

Libertarian philosophy is beautiful in its simplicity. It also is ugly in its simplicity, because, well, things aren't that simple. It's a shame Libertarians are unwilling to stray from their rigid doctrine. It might allow them to capture more of a following. Certainly, on matters of civil liberty, their platform is superior to that of either the Republicans, who seek to legislate morality, or Democrats, who don't have a coherent philosophy. The Libertarian philosophy on foreign affairs also has a lot to say for itself. And the Libertarian philosophy in military affairs contains an element utterly lacking in both the Republican and Democratic philosophies -- a shred of human decency and morality.

I've had significant exposure to Libertarian thinking. My sister was the Libertarian candidate for Vice-President in 1992. We've had numerous conversations on the topic. She knows her principles cold. She can apply them to virtually every policy question that arises, with dependable, predictable results. But when peppered with questions about details and nuance, she has no answers. 

I recently posted a comment to another BFAZ blogger's post, wherein I argued that in a country whose people consider it the "greatest country in the world" every job should pay a living wage. One of our regular commenters, Thane, a seemingly devout Libertarian a la Ayn Rand, responded as follows:

Government cannot mandate a given level of wages any better than it can mandate a given level of prices (without severe unintended consequences). Society is better off if government sticks to prohibiting the few acts where offenses are clear (murder, assault, robbery and fraud) than allow it to impose a utopia via various government mandates. Obamacare (or if you prefer the Patient Protection and Affordable Care Act) imposes new mandates every year and each mandate makes it more likely that a given job will be performed outside the USA. I for one think that is a bad consequence.

https://www.google.com/search?q=wage+and+price+controls+austrian+economics

It all sounds so logical. But implicit in the logic is that the market works perfectly. That is an absurd assumption. Situations where the free market breaks down abound. Consider utilities. Allowing unlimited entry of sellers in the utilities market would be unwieldy. So, we've adopted a policy where we allow sellers to have monopoly power, but we police their rate-setting as an artificial means of limiting their profits to what a competitive market would allow. 

So, it's easy to rail against a mandated minimum wage. But it ignores several realities. First, the argument that "it is more likely that a given job will be performed outside the USA" doesn't quite cut it when you're speaking of minimum wage jobs, especially when those jobs are not transportable. Walmart cannot outsource its greeters, cashiers and shelf stockers. Can't happen. Hotels can't outsource their desk clerks and housekeepers. Yes, you could argue that Walmart competes with Amazon, which could outsource, but the argument is strained, to say the least. And, if you look at the financials of a company like Walmart, the wages paid to workers at the low end are such that there is little to be gained from outsourcing those jobs. That's why we haven't lost many minimum wage jobs to outsourcing. 

Second, and far more important, the Libertarian philosophy assumes the smooth operation of the market. But, just as the utility is at an unfair advantage as a seller, Walmart is at an unfair advantage as buyer of minimum wage work. In a perfect market, neither buyer nor seller is under a compulsion to buy or sell, with the resulting price being a "fair market" price. For example, if there are multiple grocers in town, each consumer can buy his or her eggs from any grocer, and each grocer only needs to strike a deal with a fraction of the consumer population in order to unload his whole inventory. But what would happen to the price of eggs if (a) there were only a few consumers, but millions of sellers; (b) one of those consumers purchased a large portion of the total egg market; (c) each seller had only one egg per day to sell; (d) if a seller failed to sell his egg on a given day, the egg would be worthless; and (e) if a seller went more than a week without selling an egg, he'd suffer tremendously. The large consumer in this example obviously is Walmart, and the unfair leverage it has over the sellers of labor is similarly obvious. Indeed, Walmart does exercise similar leverage over its suppliers, often with equally devastating results. In both these situations, the market breaks down, because the sellers (workers and suppliers) are far more compelled to sell than Walmart is to buy. As a result, the striking price is not a fair market price, but an artificially depressed price. And it's not just Walmart that may exercise such leverage over employees. In a loose labor market, even the smallest of employers has an unfair leverage over its workers. 

Libertarian doctrine is too rigid to address this societal problem. Government, however, must be adaptable enough to address societal problems. In this case, there are two mechanisms available to Government. One is the minimum wage. Just as governments set a maximum rate utilities may charge, governments set a minimum wage employers must pay. These policies are mirror images of one another. The other mechanism is organization of workers. This is the preferable solution. If workers form a union, the workers collectively are placed in a far more equal bargaining position. The union has reserves that allow its members to go a longer time without a job, thereby reducing their compulsion to accept what the employer offers, regardless of its fairness. At the same time, the employer's downside of not coming to terms is made greater, because it will have no workers at all, thereby causing it to lose revenue. 

I'm in the middle of Joseph Stiglitz's latest book, The Price of Inequality, How Today's Divided Society Endangers OUr Future. There's a section on that explains why the Libertarian philosophy is too simplistic. Stiglitz explains how the economically and politically powerful seek "rents," profits they receive by virtue of their position and nothing else. He further explains that Government's role must be to address the inherent unfairness of rent seeking, through regulation. I'd recommend Stiglitz's book to anyone, but I'd especially recommend it to Thane (and, I suppose, my sister). 

As I said, Libertarian philosophy is beautiful in its simplicity. But when you dig just an inch or so beneath the surface, the logic breaks down. Life in a society of three hundred million just isn't that simple. And therein lies the rub. It would be easy enough to modify Libertarian philosophy to address the realities of the marketplace, without corrupting the philosophy itself. But doing so would destroy the seductive nature of the philosophy -- its simplicity.  

Comments

[todd]

Across the world there are many wonderful movements which use the term libertarian that would be unrecognizable to US libertarians and I think it is worthwhile to point this out as below I am only speaking of what is called libertarianism here.

What is called libertarianism in the US does suffer from some serious shortcomings. One is that many of the libertarians (Ron Paul is a perfect example) are really just people who want to impose their own reading of the US Constitution on the country and see things through that lens. Paul doesn't necessarily believe in more liberty for people, he just thinks these laws should be made at the state level.

A second major problem is that libertarianism has adopted Austrian Economics as its way of viewing economics. This is unfortunate for them since the Austrian position is not one which deals with data and analysis but is rather a philosophy with many a priori assumptions one must believe. The minimum wage argument is a perfect example. According to Austrians, having a minimum wage or increasing it leads to all sorts of negative consequences. However, these results are just not seen in the real world when the wage is increased or in comparing countries with and without minimum wages. There are many examples like this which winds up making their economic arguments very weak.

There are numerous issues which are not satisfactorily dealt with as well - thus the simplicity. What about inherited wealth? That is a big one. Also, they don't seem to understand that property is not a 'thing' but a system of definitions which have developed as a social construct over centuries of history.

There is also a serious insensitivity to the very real results of power at the intersection of the state and private enterprise. We see this in the belief that the Civil Rights Act was some type of abomination.

Lastly, it is quite clear that people don't want to have the type of government that libertarians envision and this would necessitate developing a state which would make it impossible for the majority of people to have significant say in the making of laws. It has not been uncommon for libertarians to heap praise on leaders of other countries who use state power to do away with 'collectivist' (as they would put it) policies. This along with the adherence to a certain reading of the Constitution (particularly a reading which more closely resembles the Confederate Constitution than what was even historically understood) leads me to a serious concern about what they would actually do if given a chance to govern.

[AZ BlueMeanie]

Well said, sir. I salute you.

[Thane "Goldie" Eichenauer]

"[Ron] Paul doesn't necessarily believe in more liberty for people, he just thinks these laws should be made at the state level."

3 minutes on how Ron Paul does believe in more liberty for people: http://www.youtube.com/watch?v=ec6Zu99Xe1o

He does support the US Constitution which does assume that some laws should be made on the state level. If you (or Ron Paul) believe otherwise We the People can always petition to be made a federal district and abolish our state legislature. Even the citizens of Washington, DC don't want to be ruled over by the US Congress.

"...not seen in the real world when the wage is increased or in comparing countries with and without minimum wages. There are many examples..."

Can you identify two?

"Also, they don't seem to understand that property is not a 'thing' but a system of definitions which have developed as a social construct over centuries of history."

You may assert that property is not a thing but even Warren Buffet has enough of an attachment to his property that he doesn't just donate money directly to the US government because you claim it is "a system of definitions which have developed as a social construct over centuries of history".

"There is also a serious insensitivity to the very real results of power at the intersection of the state and private enterprise."

Which is why libertarians support limiting the power of government ("the State") so as to minimize the power any such intersection might inhabit.

"It has not been uncommon for libertarians to heap praise on leaders of other countries who use state power to do away with 'collectivist' (as they would put it) policies."

Again, could you please identify two instances?

[Thane "Goldie" Eichenauer]

"The Libertarian philosophy on foreign affairs also has a lot to say for itself. And the Libertarian philosophy in military affairs contains an element utterly lacking in both the Republican and Democratic philosophies -- a shred of human decency and morality."

I am happy to hear that you find that the libertarian philosophy as applied to foreign policy is good.

"But when peppered with questions about details and nuance, she has no answers."

Perhaps you can offer her a couple of short and specific questions about details and nuance relative to libertarian positions here at BfA and see if she still has no answers.

"But implicit in the logic is that the market works perfectly."

It is clear that many people believe that a free market does not produce a desirable outcome. For all such people the usual suggested alternative is pervasive mandatory government regulations. I for one am not impressed with the results of government mandates.

You might be right that businesses cannot (immediately) eliminate some jobs such as greeters, stockers and cashiers. I worry though that increased taxation and regulation will make it cost effective for them to do so. Can you imagine how many people will self-check at the grocery store if it offered a 2% discount to do so (thereby making a number of cashiers redundant)? Many jobs can and will be replaced or eliminated if you make it cost ineffective to employ people.

As far as Walmart and a preferable "fair market" I find your arguments to be good as far as they go. However Walmart cannot force anybody to shop at their store nor can it force anybody to work there. Can you identify at what point government regulation produces your "fair market"?

As far as Stiglitz may argue in favor of government regulation because of those who hold political power that sounds a bit like circular reasoning to me. As far as government regulation in response to those who hold economic power (so long as it was morally obtained) I don't think that economic power (so long as it is not obtained or retained as a result of government power) is a bad thing. I can always find a better solution if I am allowed to engage in voluntary exchange. I CANNOT find a better solution if government mandates a solution. You are absolutely correct that I find the idea of peaceful and voluntary exchange to be seductive. Whether it is insidious depends on whether you think personal and economic freedom to be a good idea or not. Much also depends on how a person defines freedom.

I am happy to keep Joseph Stiglitz's book in mind. I want all good people to live (longer) and prosper (more). When I see the results of free markets (e.g. voluntary exchange) I see long life and general prosperity. When I look at the results of government regulation I see the benefits flow to a small minority and general poverty.

If you can get Joseph Stiglitz to debate Bob Murphy I would be happy to watch that.

http://youtu.be/7w2xXOQY-NY - http://krugmandebate.com/

Lastly, please pardon the delay in my reply. Nine paragraphs is a substantial amount of words to review and respond to.

I did watch 5 minutes of Joseph Stiglitz circa 2007 at:
http://www.dailymotion.com/video/xyjto_beppegrillo-it-lavoro-e-globalizzaz_news (Italian subtitles)

via http://www.beppegrillo.it/en/2007/01/stiglitz.html

[todd]

The Ron Paul video says very little here is my point - Why is it libertarian to say the federal government can't restrict my rights in certain areas but state government can? What happens when local governments wish to restrict my liberty more than federal government?

Off the top of my head two examples regarding minimum wage - the US and Indonesia in the 1990's.

I don't think you understand the point about property or how state and private enterprise work together. For the former, I would look at some writings of economist Gene Callahan.

Two instances of libertarians being supportive of authoritarianism - Hayek and Pinochet. Mises and Mussolini. You can also find many examples of libertarians - Patri Friedman, for instance - denouncing democracy. Hans Herman Hoppe is clearly an authoritarian as is Lew Rockwell.

[Thane "Goldie" Eichenauer]

Thank you for your fully responsive reply.

I would assert that supporting obedience to the US Constitution is libertarian as supporting the principle that rules that restrict government should be obeyed even when they may not support your immediate concern is still supporting restriction of the power of government. To fail to support a US Constitution whose purpose and application is fixed supports the concept of a living constitution which enhances government power on a federal and state level.

The US Constitution was not meant to be a tool by which the federal government was granted universal and unquestioned control over the states. Granting the federal government more power than is found in the US Constitution is a step towards granting any and all governments more power (which libertarians oppose).

As for your point about property you are correct. I'll take a look at Gene Gallahan.

Again, thank you for your responsive answer.