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The End of Libertarianism: The financial collapse proves that it makes no sense.
- davidw 18y agoBzzzzt. Off topic. This is just as off topic as the 'Krugman Wars': http://news.ycombinator.com/item?id=332475 http://news.ycombinator.com/item?id=332475
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- MikeCapone 18y agoThe financial collapse proves that fiat money and government intervention in markets via the fed makes no sense (creates bubbles that then burst, like the housing bubble cause by 5 years of 1-1.75% interest rates). To see if a free market works, we should try it someday.
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- Dilpil 18y agoNo, no, no. Libertarianism is not the philosophy that free markets will never crash. Libertarianism is the idea that government intervention is morally wrong, and many libertarians believe that it is always eventually destructive. The article does not address the bigger question: What government intervention would have prevented this? The article is disturbing because not only does it lack rigorous logical arguments, it openly mocks libertarians for using them. This kind of anti intellectual attitude is common among republicans, but I am surprised to see slate publish an article that espouses it.
- aswanson 18y agoLibertarianism is the idea that government intervention is morally wrong In every case? Does this make logical sense? How can this be justified for all possible conditions and outcomes?
- SwellJoe 18y agoTechnically, "the idea that government intervention is morally wrong" when combined with "in every case" is anarchism, obviously. Most libertarians (big and little L) believe the government does have a few legitimate roles, often including national defense (and not offense) and defense of basic human rights (via police and a court system). Libertarians are an extremely argumentative bunch, and you'll be hard pressed to find two who believe the exact same things. Keeping a libertarian "on message" would be an exercise in frustration...which I guess is one reason why none ever get elected. I'm a card-carrying member of the LP, though ethically, the purity of anarchism is appealing to me. Regardless, I'd be perfectly content, and would feel very much less disenfranchised and poorly represented, with a government that looked a lot like the one originally envisioned by our founding fathers, which is, I guess, "Republican" in the traditional sense.
- yummyfajitas 18y agoJust to clarify, there is a simple general principle at work: the government should provide only public goods (1). The main dispute among libertarians is which goods qualify as public goods (e.g., is fire protection public or private?). (1) A public good is one that is non-rivalrous and non-exclusive. Protection from commies is a public good (a dead commie isn't robbing you or me). Cheese fries are not (every fry I eat is one you can't).
- Prrometheus 18y ago>Libertarianism is the idea that government intervention is morally wrong There is a utilitarian branch of libertarianism that argues that free markets are best for society. It does not predict that free markets eliminate economic fluctuations, only that society will be better off with free markets over the long term. This branch of libertarianism is filled with many of the libertarian economists. Also, I don't think those libertarians would see our credit markets pre-crash as being a shining model of libertarianism.
- earthboundkid 18y agoYeah, I personally think that the moral argument against government intervention is bunk. That said, I do think there's a strong consequentialist argument to be made for markets and against regulation. To me, this seems like the basic position of eg. Reason Magazine, Wil Wilkinson, etc.
- walterk 18y agoBeing something of a utilitarian myself, I see intervention being necessary when market incentives are not aligned with what's best for society. I've never seen anybody make a convincing case that such misalignments do not exist, or that a free market is always able to account for them more efficiently than the state. EDIT: Feel free to make such a case or link to one. I'd like to be proven wrong.
- Prrometheus 18y agoDavid Friedman is a utilitarian libertarian anarchist, son of the famous Milton Friedman. In "The Machinery of Freedom" he makes his case for an anarchist society. He does not claim that markets are always better without state intervention. His claim is subtly different: that a society without a state is better off than a society with one. He leaves open the possibility that the state might be better at some things than the market, but he argues that the drawbacks of a state outweigh the possible benefits. David's son, Patri, runs the anarcho-capitalist Seasteading Institute, which aims to create seastead societies on the ocean (think "Water World", without the suck). He believes that seasteads will be more resistant to government monopoly, since a group of people who did not like their government could simply float to a different one. Given the results so far, other libertarians encourage the Friedmans to breed as much as possible.
- walterk 18y ago> No, no, no. Libertarianism is not the philosophy that free markets will never crash. I don't think the author ever made that claim. You'll notice he links to a range of arguments, running the spectrum from "government intervention is to blame for the crisis" to "let crises take their due course." > Libertarianism is the idea that government intervention is morally wrong I'm curious as to what bases libertarians (particularly those reading HN) rely upon to justify this claim. I've read Nozick, and for a year or two I was actually a staunch objectivist. (I went to an objectivist meeting once and think I scared some of the attendees by insisting upon a fixed-sum tax rather than a flat-rate.) What are the major reasons why libertarians believe government intervention is morally wrong, and what works would you cite as persuasively making the case?
- mattmaroon 18y agoLeaving aside the moral issue, there's no reason to believe government intervention would have improved the situation in either the short or long term. It's easy enough to look back in hindsight and say what could have been done, but governments don't intervene in hindsght. And even if they could, it's quite possible that what we're dealing with now will make us stronger in the long term, whereas were it prevented we may have been weakened. It's just too unknowable to say, and too easy to point back in hindsight and say "here's where government could have helped." Unfortunately, that's not very useful.
- walterk 18y agoI honestly don't know enough about the situation to say what could have been done, if anything (which makes me incapable of knowing whether your claim of unknowability is true :P). But while governments don't intervene in hindsight, driving ideologies largely determine what possibilities a person pays attention to, and thus the capacity of their foresight.
- Prrometheus 18y agoIf you read Nozick and were once an Objectivist, then I would guess that you've been exposed to most of the popular libertarian moral arguments.
- Tichy 18y ago"Libertarianism is the idea that government intervention is morally wrong" Since morals are just a substitute for lack of knowledge, that seems kind of silly. So libertarianism is a kind of religion?
- thomasmallen 18y agoIf libertarianism is a kind of religion, then The Wealth of Nations is a theological work. Give me a break.
- Tichy 18y agoI haven't read "The Wealth Of Nations", but I thought it was an economics book, not a libertarians manifesto.
- qqq 18y agoWe don't have a free market. Blaming the crash on freedom is ridiculous.
- yters 18y agoThe article says we are in the problems we have now b/c 3 people who explicitly believe in libertarian or libertarian like ideas followed their philosophy and deregulated specific portions of the market. The added, and somewhat implicit premise, is that these actions are logically implied by libertarianism, since libertarians are known for logical consistency and the people at fault are a good example of this libertarian virtue. Thus, their failure of policy is an implied failure of libertarianism. This is analogous, which the article points out, with the failure of communism - the best practical example of the ideology in practice is unsuccessful thus invalidating the ideology. So, claiming that we don't have a free market does not address the argument the article makes. Instead, it is like the communists claiming communism hasn't worked so far only b/c it hasn't been implemented purely. Even if this is true, arguments like this only mean that the proposed philosophy is practically unworkable, since it is not possible to purely implement any ideology.
- TomOfTTB 18y agoUmmm...No. The article says that this is a failure of libertarianism because the 3 people you mentioned believe in libertarian ideals and their policies led to the current economic failures. The person responded that those 3 people failed to create a free market and you then countered by saying they did the best any people could. If those 3 people were in turn the very pinacle of competence than your counter argument would hold some weight but that's clearly not what the original comment is saying. They're saying those 3 people failed to live up to the ideas of libertarianism and so their actions are not a good example of the libertarian ideal. I don't even agree (at least not fully) with the person you replied to but I can see how your logic is flawed here.
- walterk 18y agoI would agree that the crash doesn't refute libertarianism to the extent that libertarianism demands a completely free market. On the other hand, the chances of libertarians getting their way in a large-scale society like the US is exactly nil, and there's an excellent case to be made that injecting libertarian-motivated policies in a non-libertarian environment, for no reason beyond their agreement with libertarian ideology, can be more disastrous than the alternatives. I have a friend who was beginning to think anarchism was the way to go, but I nipped that thought in the bud by pointing out that the arguments for anarchism are highly intellectual and incapable of swaying the masses. The same is true of libertarianism. Democratic and socialist revolutions had their origins in highly intellectual arguments, but the confrontations their ideologies demanded were easily translated into something that the non-intellectual populace could forcibly get behind (to whatever extend this was actually necessary). It's hard to see how you'd sway a majority of the American populace into backing the sort of completely free market libertarians want to see. And if that's not doable, libertarian proponents would better spend their time figuring out how to make a decidedly interventionist society work more efficiently.
- ericwaller 18y agoThe financial collapse doesn't prove anything. Capitalism, socialism, despotism, anarchism, whatever. At the center of any society there will always be people making mistakes.
- pg 18y agoOr proves, like many a previous crash, that there are still bugs in the de facto software that is the financial system. Patch, continue, hit the next-- but grow overall. At least we know now not to debase the currency; it took the Romans a couple hundred years to learn that didn't work.
- rsheridan6 18y ago>At least we know now not to debase the currency; it took the Romans a couple hundred years to learn that didn't work. I wouldn't be so sure of that. I think debasing the currency DID work in the short run to solve whatever crisis the emperor had to deal (no funds to pay the troops, etc), despite the negative long-term effects. Modern politicians could get similar short-term benefits - voters would probably prefer debasement to tax increases because the problems caused by debasement aren't as obviously linked to it as larger withholdings on a paycheck are to taxes. It may become tempting for American politicians to debase the currency to reduce the massive debt we've accrued.
- eru 18y agoIsn't the Dollar already getting debased? (At least compared to other currencies. The FED's interest rates have been low for quite some time.)
- darjen 18y agoUtterly ridiculous. The author doesn't know the first thing about libertarianism.
- elidourado 18y agoI am a libertarian (well, a philosophical anarchist, actually) and I favor some sort of government intervention to attempt to avert a financial disaster. Indeed, I would have favored more regulations to rein in the GSEs before the collapse. There is no contradiction here. Given that you have moral hazard problems created by government, it is not somehow unlibertarian to advocate regulation to reduce excessive risk-taking by government-backed agencies. Ideally, Fannie and Freddie would never have existed. Since they did exist, the second-best case would have been for them to be purely private entities with no implicit government guarantee. The third-best case would have been for them to be purely public entities with no profit motive. The fourth-best case would have been for them to be mixed private-public entities like they were, but subject to stringent oversight. We were in the fifth-best case in which they had a profit motive, moral hazard, and little oversight. For similar reasons, I favor a bailout. There is a time-consistency problem. The government would like to commit to never bailing anyone out. If it were able to do this, the need for bailouts might not arise. But it cannot commit; since everyone knows the government will bail big financial firms out, it basically has no choice. None of this in any way contradicts my view that the government should not intervene in housing markets in the first place, that currency competition should exist, that taxes should be much lower, that there should be no government redistribution of incomes, that public schools should be shut down, that there should be no government provision of health care, that the draft should be abolished, that marriage should be unregulated, that prostitution should be legal, or that 12 year olds should legally be allowed to purchase heroin from vending machines.
- netcan 18y agoI think you may be hanging to tightly to the semantics. Libertarianism is not being used (in this article or in general discussion) in its moral theory/political theory sense. They are referring to the derived economic policy theories. Hype removed, it might read: 'End of government intervention as a taboo.'
- elidourado 18y agoNo, I don't think so. I am an economist; I understand the issue. I'm saying that if you start with a government intervention, there's not anything unlibertarian about advocating a further intervention to make things less bad, provided that you oppose the initial intervention. For instance, libertarians oppose government-created monopolies. But given a government-created monopoly, it's not unlibertarian to support regulating it. The optimal libertarian policy is obviously abolishing said monopoly. The second-best one is regulating it. The third-best is letting it abuse its power.
- TomOfTTB 18y agoWell, here’s the problem with this. Banks started making bad loans BECAUSE of Government. Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement. The Clinton Administration passed a law which provided funding to banks that gave loans to "risky" buyers with bad credit. Since then there’s been an endless stream of laws doing the exact same thing. Politicians like saying "housing is at a record high" so they’ve been trying to game the financial markets to encourage loans to anyone and everyone. That’s what primarily caused this crisis. Don’t get me wrong, there were other causes as well. The 1996 bill did not, in and of itself, cause this problem. But in general this was caused by a society that thinks it can do anything it wants because Government will "manage" the economy and always bail it out. If you agree with this article ask yourself this: Once the economy recovers a little, why wouldn’t banks go back to the exact same lending practices that got us into this mess in the first place? If they know the Government will bail them out there’s no reason not to? Oh, and while you are asking yourself that, also ask yourself why Europe got in the same trouble even though they have an example of the highly managed economy that people like the article’s author are endorsing.
- davidw 18y ago> Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement. But when they securitize the loan, and sell it on, they have every incentive to 'make bad loans', because they get a cut of the sale, and little of the actual risk. This crisis does not have one and only one cause - it's a mix of nasties that came together. Anyone who is trying to sell you one policy that would have fixed it "it's all the government's fault!", or "if only we had had more regulation!" (without saying what regulation) is very likely wrong. Tyler Cowen, as he often does, has something sensible to say: http://www.nytimes.com/2008/10/19/business/19view.html?partner=permalink&exprod=permalink http://www.nytimes.com/2008/10/19/business/19view.html?partn...
- mynameishere 18y agoRather full-bore idiocy, there. I mean--libertarianism? Really? That's who you're blaming? Well, let's assemble all of congress, and ask them, "Will all libertarians raise their hands?" You'll have one hand raised. Assemble every high level official in the Bush administration--ask them the same thing. [crickets chirp] Do the same thing throughout all the bureaucracies...well, here you might get a few, since low-level people see how things are, and don't worry too much about political presentation. But still...2 or 3 percent at most. And Greenspan? The very definition of a market-manipulator is a...libertarian? Ah, and Hitler provided free housing for the Jews! That's right! This is like blaming the Atheists for 9/11 because there was a single atheist among the victims. I'm glad to see a copy of that rubbish was in Newsweek. That's great.
- s_baar 18y agoThis is near facetious. These aren't "theories" that sprang up overnight like the bailout did. Austrian economists have specifically identified Freddie/Fannie etc. as the agents of credit expansion to the housing sector, BEFORE there were problems. A total non-sequitir, he dismisses them without even bothering to offer an alternative theory. Also, it's misleading to reference CATO. No libertarian outside of CATO respects them. Randians are fair game (it IS fun to poke at them), although their mention in this article was more to sensationalize than to add anything relevant to the topic at hand. Oh well. It seems that those animal spirits area acting up again. It sure is convenient that all government action is supremely rational.
- zzzmarcus 18y agoYou're the first person I've heard to say that most libertarians don't respect CATO. Who do they respect then? I'm not trying to be confrontational, just asking...
- s_baar 18y agoRon Paul, Austrian economists, lew rockwell. It may have been rash to say that people don't respect CATO. However, recently, previous disagreements are now seriously hurting opinions because of the bailout. The main beef with CATO is their connection to neocons and objectivism. Their support for the bailout as a temporary solution matter hasn't helped.
- wustl07 18y agoGod I love amateur hour. The economic crisis stems directly from the impossibility of correctly modeling rare events in a complex system such as the financial market. You throw the gross lack of accountability fueled by many factors, including a few government backed loans used for leveraging, and no one has to ever solve the real problem. A new approach is needed for the financial markets, and it should have absolutely nothing to do with increased regulation.
- mattmaroon 18y agoWow. He argues that a financial collapse caused by two quasi-governmental businesses giving out loans too liberally due to a decade of government pressure is the end of Libertarianism. If anything, it feels more like the beginning.
- gabrielroth 18y ago"Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent.... One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards." http://www.mcclatchydc.com/251/story/53802.html http://www.mcclatchydc.com/251/story/53802.html
- sh3l1 18y agoBesides, financial freedom is only half of libertarianism.
- defen 18y agoSerious libertarians disdain fractional reserve banking as the source of bank runs. The current financial troubles hardly discredit libertarianism.
- snewe 18y agoI love this mentality: if only smart bureaucrats were running the mortgage market, none of this would have happened!
- maw 18y agoThe whole article seems to be building towards that—along with the notion of smart lawmakers writing the necessary laws to make it happen just right—but ends rather abruptly. Talk about painting yourself into a corner.
- joseakle 18y agoi'd say it was a hell of a hack, just don't forget no to be evil
- baddox 18y agoPointing to Sarah Palin as an example of a libertarian is, much like the rest of this article, ludicrous.
- baddox 18y agoThe author consistently accuses libertarians of relying on "abstract theory," yet this article itself is a rather abstract attempt to debunk libertarianism. To even contend that libertarian economic principles have been applied prominently in the US or global economy is ridiculous, to further claim that these libertarian principles have caused the current circumstances is beyond ridiculous. The entire line of argument in this article is off base; the same line could be used to blame Hitler's atrocities on democracy or the Roman army's defeat at the Battle of the Allia on their use of the phalanx.
- crux_ 18y agoSunday is a good day for debating on the internet... So, here's what is probably an unpopular thesis, but one I believe is true: Libertarianism is a convenient fantasy but nothing more. Libertarians somehow believe that "free markets" and "regulation" are antonyms, as if the market is something other than a regulatory creation. Think: Would a free market exist without the force of government backing contractual obligations? (I'll exempt the anarchist libertarians here, who lack this willful ignorance, although their vision is hopelessly rose-tinted.) What about regulations on activities like insider trading, or lying on balance sheets? The fact is that, just like in so many other things, individual self-interest is often at odds with the continued existence of any shared enterprise, including the free market itself. Without regulation to create and sustain it, the market wouldn't even exist. So the question is really that of "which regulations" rather than "no regulation"; libertarians conveniently pretend otherwise, forcefully claim an absolutist moral high ground, and in doing so badly distort policy debates and decisions. (Even if we buy what anarchist-libertarians are selling, their vision is essentially yet another utopia and like all utopias, there is no clear path 'there' from 'here'.)
- thomasmallen 18y agoMaybe Slate should spend its dollars on decent writers instead of the design overhaul. It's unbelievable how far their journalistic quality has fallen over the past couple of years.
- gills 18y agoWhat an asshat. These problems aren't a failure of any system or ideology, they are a failure of law enforcement.
- stevedekorte 18y agoLibertarians have been warning others about the collapse of the debt bubble since the early 1970's and have been alone in calling for the end of the central banking system which creates debt bubbles. It is the height of ignorance to claim that the current collapse is a case against Libertarian economics.
- asciilifeform 18y agoLibertarianism cannot be killed any more than Catholicism could. The market crash is a "test of faith." Every failure can be attributed to an insufficiently libertarian government.