Responding to Reason

Nick Gillespie at Reason wrote last week about Demos' new initiative on libertarian ideology. Here are a few thoughts in response. 

Let’s begin by stating what libertarians and the Gamm Initiative have in common. We share in common a commitment to civil liberties and curbing “mindless military adventuring.” We share a commitment to the democratic process of public policy outcomes as a result of moral persuasion, “rather than conversion by the sword.” Indeed, these ideas are not uniquely libertarian. They are shared enlightenment values.

Our disagreement with Gillespie and libertarians lies in their reflexive attack on government. They assume that unfettered free markets can better serve the general welfare without government oversight, except for the police to protect private property and the military. However, there is no country on earth that has prospered without  government regulation of commerce. Our country has always been a mixed economy with elements of capitalism and social welfare. The preamble to our constitution sets forth the purpose of our union as a government by its citizens striving for a more perfect nation by serving the general welfare. 

The most persuasive, though distorted, argument by Gillespie was the following paragraph:

It isn’t libertarians who bailed out the banks and doubled defense spending and foisted ever-more-expensive, jail like K-12 schools on kids and taxpayers alike. It isn’t libertarians who are deporting immigrants in record numbers and filling the nation’s prisons with drug users. Or defending presidential kill lists and drone attacks, the prosecution of whistle-blowers, the infinite extension of Mickey Mouse’s copyright, banning gay marriage, and forcing young, relatively poor Americans to pay for the health of old, relatively rich ones.

Although it is true that it isn’t consistent with libertarian ideology to bail out the banks, it was their ideology that caused the economic collapse of 2008-09 that made the bail-out necessary. Alan Greenspan assumed that the egregious practice of mortgage bankers selling subprime loans to new borrowers that did not meet reasonable lending standards would self-correct without oversight. That was because of his faith in the market correcting externalities. Libertarians subscribe to a faith that the breach of fiduciary responsibility, where there is a misalignment of expertise between brokers and borrowers, is corrected by natural market forces without the necessity for oversight.

The era of President Reagan’s salesmanship that government was the problem and that the solution was to deregulate and privatize government activities resulted in underfunding the umpires (regulators) that ensure fair business practices.

It was the absence of adequate regulatory oversight that enabled the bond rating agencies to become riddled with conflicts of interest. This incentivized them to give their highest ratings to mortgage bundles. It was the mindset of libertarian policy makers that disparaged Sheila Bair’s warning that the highly leveraged mortgage bundles needed transparency and oversight. The principal features that contributed to the worst economic collapse in our lifetime stemmed ineluctably from libertarian ideology.

Hank Paulson and Alan Greenspan were advocates of unfettered free markets and Ayn Rand ideology. They were faced with a personal, wrenching, self re-evaluation by observing the consequence of their failed, life-long libertarian beliefs. Paulson realized that in order to prevent our country from another 1929 style depression he had to bail out the banks in contradiction to his belief in moral hazard. Alan Greenspan also admitted before Congress that his life-long belief in libertarianism was wrong after realizing the economic devastation caused by his hands-off approach to lending practices that violated prudent risk management.  

It is reassuring that libertarians support gay marriage and are against presidential kill lists, drone attacks, and so on. However, many of these positions Gillespie doesn't like are endorsed by Republican leaders who cater heavily to a libertarian base. Gillespie asserts that libertarians are opposed to deporting large number of immigrants, but the Republican Party refused to sign an immigration reform bill unless there were stronger safeguards to keep immigrants out of the country.

As for Gillespie’s assertion that libertarians are not for “the infinite extension of Mickey Mouse’s copyright” it is not clear what he means by this statement. Is he opposed to government copyright and patent laws?  Does he not believe that Walt Disney has copyright protection for its significant investment in creating an icon? Without copyright and patent protections for artists and inventors, they would not have intellectual property. 

A world without regulation may sound like utopia to libertarians. But practical experience suggests that rules form the very basis of economic prosperity—not to mention fairness. I'm glad that Gillespie sees this Initiative as an opportunity to engage. We're eager. 

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