
The End of Libertarianism: The financial collapse proves that it makes no sense. - gabrielroth
http://www.slate.com/id/2202489/pagenum/all
======
Dilpil
No, 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.

~~~
Prrometheus
>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.

~~~
walterk
Being 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
David 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
Added to my wishlist. Any other works you'd recommend?

With respect to the seastead societies, which I've heard about, I think it's
certainly plausible that they'll "work", given sufficient diversity of
available governments, and hence, appropriately homogenous small-scale
populations. But in a geopolitlcal landscape ruled by nation-states, I would
be truly wary of breaking down powerful liberal democracies like the US into
anything resembling these things. It's rather unclear to me how you could
mobilize a sufficient defense against nationalist military forces.

I recall reading in my undergrad days about similar small, voluntarily formed
communities. (One of them, for instance, eschewed all laws and use of
coercion, relying on subtle and not so subtle forms of ostracization to keep
people in line.) But it occurred to me that these communities were entirely
dependent on having a larger, more powerful neighboring entity around to
protect them, and I have to believe these seastead societies are subject to
the same dependency.

~~~
Prrometheus
By the way, there aren't that many libertarian anarchists that have written
popular works. The only one I can think of besides David is Murray Rothbard,
who wrote "For a New Liberty" detailing his anarchist vision. It's available
in its entirety online. However, he is not a utilitarian, and I don't remember
Murray being as convincing as David.

As the libertarian movement has grown it has become more ideologically diverse
and more moderate on average. There are few fire-breathing anarchists around
any more (David is not a "fire-breating anarchist". Murray was.).

~~~
walterk
I guess what I'm looking for are works with a strongly empirical basis
(doesn't have to be popular). Stuff that, at the very least, deals with the
wealth of research on collective action problems and economic psychology. I'm
hoping David's book does some of that.

~~~
Prrometheus
No, I don't think David's book is what you're looking for. It's more of an
argument that anarchy is a plausible and desirable arrangement for society
given the current state of microeconomic thought. He offers a theoretical
basis for private law enforcement and law making, as well as other functions
that are normally performed by the state.

On the empirical side, he does have a very nice chapter on Iceland, which went
without a public bureaucracy for a few centuries. Law enforcement was
essentially a private business for awhile. It's a good read.

I know that one of the big Public Choice guys did some writing on the
feasibility of anarchy (Buchanan, I think). However, I'm not sure if it's the
kind of work you are looking for. There's been few functional anarchies on
this planet that we know about, and it's not a topic that gets most economists
published. I'll let you know if I find anything.

If you're looking for information on the problems of collective action, then
the Public Choice guys are definitely the place to start (Buchanan, Tullock,
etc.).

~~~
walterk
Much thanks. I'll keep this comment bookmarked.

------
elidourado
I 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
I 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
No, 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.

~~~
netcan
I wasn't implying tat you don't understand the issue. Just that I think the
article is implying something more shallow then what you seem to have
responded to.

------
pg
Or 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
>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
Isn't the Dollar already getting debased? (At least compared to other
currencies. The FED's interest rates have been low for quite some time.)

------
TomOfTTB
Well, 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
> 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?partn...](http://www.nytimes.com/2008/10/19/business/19view.html?partner=permalink&exprod=permalink)

------
MikeCapone
The 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.

------
crux_
Sunday 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'.)

------
mynameishere
Rather 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.

------
wustl07
God 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.

------
davidw
Bzzzzt. Off topic.

This is just as off topic as the 'Krugman Wars':

<http://news.ycombinator.com/item?id=332475>

------
mattmaroon
Wow. 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
"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>

------
darjen
Utterly ridiculous. The author doesn't know the first thing about
libertarianism.

------
stevedekorte
Libertarians 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.

------
s_baar
This 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
You'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
Ron 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.

------
baddox
The 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.

------
ericwaller
The financial collapse doesn't prove anything.

Capitalism, socialism, despotism, anarchism, whatever. At the center of any
society there will always be people making mistakes.

------
defen
Serious libertarians disdain fractional reserve banking as the source of bank
runs. The current financial troubles hardly discredit libertarianism.

------
snewe
I love this mentality: if only smart bureaucrats were running the mortgage
market, none of this would have happened!

~~~
maw
The 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.

------
thomasmallen
Maybe 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.

------
asciilifeform
Libertarianism 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.

------
gills
What an asshat. These problems aren't a failure of any system or ideology,
they are a failure of law enforcement.

------
baddox
Pointing to Sarah Palin as an example of a libertarian is, much like the rest
of this article, ludicrous.

------
sh3l1
Besides, financial freedom is only half of libertarianism.

------
joseakle
i'd say it was a hell of a hack, just don't forget no to be evil

------
qqq
We don't have a free market. Blaming the crash on freedom is ridiculous.

~~~
dood
A far stronger case could be made that the crash was because markets aren't
free enough, since those taking risks knew governments would back them up.

It's an interesting and very complex topic, but this article is little more
than nakedly partisan mud-flinging. The crash proves nothing, except that
modern economics is beyond the ken of modern man.

~~~
netcan
I agree that this proves nothing. I agree that the US financial system or
market in general was never free in a sense that would appease a libertarian
but..

Your sentiments are interestingly similar to what a lot of Marxists/Communists
had to say (not too many left though) when that 'failed':

That is, point to the Soviet Union & say: 'That was never true communism. So
it failed. If it was truly a Marxist regime, this never would have happened.'

As I said, I wouldn't personally take this as a 'proof' of anything. But what
seems inevitable is that this is causing a swing (in public opinion) away from
deregulation of financial markets. I think it's very likely that there'll be a
wholesale swing against the suite of things associated with 'libertarianism.'
That's a shame in a way. Whether or not financial regulatory policies are
optimal or not, has very little to do with the moral theories of
libertarianism for example.

Anyway, there seems to be a big shift in the sway these ideas hold.

~~~
johnm
Bah!

This knee jerk hysteria is exactly the same as the reaction to 9/11... A major
shock to the system freaks people out because the work isn't conforming to
(comfort-oriented) expectations and so they instantly look to someone who
looks good who promises them a return to mindlessness.

The abrogation of responsibility by the many for their own lives and the
arrogation of authority/magical-ability/etc. by the few (and the selling of
_that_ to increase power/profit at the expense of everyone else) is exactly
the underlying mechanism that created the emergent, systemic failures.

An example people might want to look at is the examples in traffic management
whereby busy, dangerous intersections have been redone so that there's less
separation and therefore more required of all of the participants to pay
attention.

I particularly like that example but there are plenty of other good examples
from the driving and traffic world if you look around.

Sigh.

~~~
0x44

      The abrogation of responsibility by the many for their own lives and 
      the arrogation of authority/magical-ability/etc. by the few[...]
    

That's a collective abrogation of responsibility by the public at large, not
one by individuals within it. The constituent members of the public do not
have (or feel they have) the responsibility or power to effect any sort of
macroscopic change to the economy. In that sense, it's not surprising that the
public nominates someone to have that power and responsibility.

~~~
johnm

        That's a collective abrogation of responsibility by the public at large, not one by individuals within it.
    

Ptui! How, exactly, do you think such "collective" behavior comes about? By
the collective, emergent behavior of the individuals!

    
    
        The constituent members of the public do not have (or feel they have) the responsibility or power to effect any sort of macroscopic change to the economy. 
    

That's the point... The masses of individuals give it up and few take
advantage by taking it up and extending their own power by manipulating people
with FUDGE (Fear, Uncertainty, Doubt, Guilt, and (the hope for self-)
Enrichment).

Doesn't anyone else find it odd that the "educational" system in the US
doesn't actually teach anything about how the political system really works?
I.e., it's all the pablum puking pap of the simplistic notion of checks and
balances and what not but doesn't actually get into how it's been
gerrymandered over the centuries, how people manipulate the (non-) voters in
so very many ways, and especially not how to approach, think, and act to
responsibly and effectively participate? Sigh.

    
    
        In that sense, it's not surprising that the public nominates someone to have that power and responsibility.
    

Indeed. What's surprising is that people believe they are more free and that
the overwhelmingly vast numbers of the so-called "thinkers" buy into the he-
said, she-said games rather than going at the underlying issues. The simplest
example for this group would be the debate of Creationism "versus" Evolution.

