Libertarians and Free Markets

It’s shaping up into another scorcher of a Presidential election cycle, but with the wildcard of a bona fide Socialist in the mix (who I’m voting for, by the way). That, of course, is bringing out the Libertarians in force, and I just got into a tiff with one on Facebook. It’s funny, and kind of sad, the way they assume you are ignorant if you aren’t a Libertarian, and a fool if you can’t be converted with just a few words of the disjointed “economic theory” they spray at you. If you continue to resist, they’ll call you (directly or indirectly) “stupid on steroids,” and stomp off after declaring the conversation a waste of time.

Well, it wasn’t entirely a waste of time for me: I’m getting a blog post out of it.

Let me start right off by saying that I’m no expert on Libertarianism. I view it about the same way I view Jainism, or SMBD. I know enough to know that Jainism is a form of Buddhism, and SMBD (no, not the Windows client service) is a kind of sex-play with lots of dedicated groupies. Past that, it’s a passing knowledge at best. So I’ll freely apologize if I get details wrong.

But the economic claims of Libertarians are so entirely consistent from adherent to adherent — to the point of being almost rote, like a creed — that I’ve formulated a few stock questions and responses to some of what seem to be the main claims of Libertarianism.

Free Markets are good, though they don’t exist.

One of the most bizarre beliefs of Libertarians is that Free Markets are a wonderful thing. If you challenge this, they will immediately tell you that you don’t know what you are talking about, because there has never been a Free Market in your lifetime, so how would you know? If you press the point, it turns out that there has never been a real Free Market, anywhere, in any time period. But they know that they are good, indeed, the best good of all possible goods.

Free Markets are like Unicorns. I’ve never seen one of those, either, but I’m sure they are covered with rainbows and poop sparkles and make fabulous pets.

When something that could exist doesn’t exist, there’s usually a reason for it, and if you go down that road with a Libertarian, you’ll start to hear about the Evils of Government Interference, and a lament that, “IF ONLY we could get rid of governments, we’d all live in the peace and harmony of the Free Market.” But what always throws Libertarians off their stride is to point out that we do have Free Markets, all over the place. The Libertarians simply don’t see them, because they are not, in fact, very nice at all.

A Free Market is an unregulated market. Like the heroin trade. Like the sex slave trade. Like any black market that doesn’t suffer from government regulation because, so far as the government is concerned, there is no market to regulate, just a bunch of criminals doing criminal things in the dark.

Libertarians get angry about this observation, and say that “government interference” in the form of raids and police action are relevant. But these are no more relevant — nor predictable — that an infestation of locusts for a farmer, or a steel shortage for an auto manufacturer. If you’re running a tight business, you plan around these. If government action in fact took more than a pittance of revenue away from drug dealers, they’d get out of the business: they aren’t there to sell drugs, they are there to make money.

As soon as you recognize that the Unicorn of the Free Market is ill-tempered, has a poisonous bite, and stinks of carrion, the picture gets a lot clearer.

The great Medieval marketplaces at Troyes its sister cities in Northern France did not really grow until the government started putting money into them, in the form of guards to protect vendors and customers, regulation of weights and measures, seasonal trade fairs, and market taxes to help pay for everything. The regulation is what made it worthwhile for customers and vendors to travel hundreds of miles to these markets.

A similar thing happened in 2001 in Argentina during the banking collapse — in that case, the merchants themselves came together to create “safe markets” where grand and petty theft alike would result in the offender being taken out back to “meet Jesus.” The downside of those interim markets was that you could (and did) get cheated regularly, and you were in significant danger on your way to the markets or your way home, outside the merchants’ protective umbrella. Markets did not become “free” again until the crisis was over and the government started regulating the marketplace.

Unregulated markets are a place to get robbed and cheated. Caveat emptor and caveat vendor rule. In the absence of fair marketing laws to keep a level playing field for competitors, cartels form, and collude to raise prices and “control” quality, which — often enough — serves to prevent too much quality for the cartel-set price. Independent competitors are likely to see their stalls, farms, and factories burned, and are themselves at risk of being introduced to Jesus.

I always like the example of Prohibition. Prohibition did almost nothing about the consumption of alcohol, but it created Al Capone and the unregulated liquor market. Then Prohibition was repealed, alcohol was regulated (and taxed), and Al Capone was replaced by Almaden. When was the last time you heard of a California winery being burned down by a competitor, or a wine distributor gunned down in the street?

Unregulated markets are ugly and dangerous.

High taxes are bad.

I was an independent contractor for sixteen years, and I usually ended up filing taxes in October and paying penalties because, when the tax bill came around in April, I didn’t have the fucking money. When you are in business for yourself, you see every cent you are paying the government. It ain’t cheap, and it ain’t pretty.

So no, I don’t like taxes. There are a lot of things I don’t like.

That doesn’t make them bad.

In the case of high taxes, I’m always brought up short by a remarkable series of unfortunate coincidences that look way too much like a pattern to the empirical side of my brain.

Taxes were low in the late 1800’s and early 1900’s (in fact, there was no income tax at all until 1913, when the Sixteenth Amendment was passed). They called it the Gilded Age. Bank panics were common, poverty was extreme (as was wealth), and the whole thing ended with a giant global stock market collapse that nearly destroyed the nation and large parts of the world.

In the aftermath, a weak form of democratic national socialism took the nation, and the top-bracket tax rate was raised to 90% between 1945 and 1960 — fifteen years of pure economic misery — during which we saw the most productive and economically stable period of US history: the period that conservatives like to point back to with a nostalgic smile.

In 1960, the top-bracket tax-rate dropped to 70%, and the American economy coincidentally started to unravel: this was the period during which the Steel Belt became the Rust Belt, and the small farmer was driven out of business by Big Agro. Earl Butz, Secretary of Agriculture under Nixon, famously said to farmers, “Get big, or get out.”

In 1980, the tax rate dropped to 50%, interest rates went up to 21%, unemployment rose to 12%, and stagflation dominated the economy. In 1988, the top tax rate dropped to 28%.

In 1992, one of the key turning points in the Presidential election was when Bill Clinton shook his head with an incredulous expression on his face during a debate, and told President George Bush Sr., “It’s the economy, stupid!” Clinton pushed the top tax rate back up to 40%, and we got the tech boom and a balanced budget.

Congress repealed Glass-Steagall in 1999 — a post-Depression regulation crafted while memories of the Crash of ’29 were still fresh — Bush II dropped the top tax rate again, and we saw an economic crash in 2008 that, though somewhat milder, can only be compared in US history to the collapse of the Gilded Age.

I can theorize all day long as to why, but there really seems to be a pattern here. Raise taxes on the rich, economy improves. Lower taxes on the rich, economy tanks. I’d frankly like to see the top tax rate — say on $10M/year or more — go to 90% for a Presidential term or two, just to watch the Libertarians tap-dance around the subject when the economy (again) improves.

Coincidentally, of course.

Government is inefficient.

And efficiency is grotesquely overrated.

Most Libertarians have never heard of the “economics of second-best.” Economists don’t tend to like to talk about it, because it brings a bunch of “externalities” into their tidy theories.

There are things that we want and even need in order to live as a community, or a nation, that no one wants to pay for. You can’t make money at it, and maybe you can’t even break even. Yet everyone benefits.

The Free Market will not touch these things. There’s no money in them.

Insurance is one of the easiest examples: after all, what kind of a business is it that wants customers who don’t need what they offer, but wants to prevent the customers who need their product from ever getting it? It’s a business with inverted economics, that’s what kind it is. Technically, it isn’t a business at all — it’s what economists call a “hedge” — and it’s horrifically inefficient (and immoral) to make profit on such a thing.

But I’m more fond of the good old United States Postal Service, since it’s a favorite whipping-boy of the Libertarians.

We’re at something called Peak Oil right now, meaning that petrofuels are as cheap and plentiful as they’ve ever been, and as cheap and plentiful as they ever will be. All mail and parcel delivery right now depends on petrofuels.

So yes, there are strong private competitors to the federally subsidized USPS, and given cheap oil, maybe they are more efficient and even cheaper.

So what happens when the price of oil rises? What happens when the cost of FedEx overnight delivery goes from $25 to $250 to $2500?

What happens is that FedEx gets out of the business, because people won’t pay their rates, which they must charge to make any profit. When that happens, there’s nothing left to deliver mail except the federally subsidized USPS. Which is still desirable for national cohesion — in fact, it’s necessary — even though it is “losing money” hand over fist.

Outside our little birdbath of cheap oil, the USPS is an ideal example of the economics of second-best.

Roads are another example. Public utilities. Public education. Public parks, public lands, public anything. They used to call it the commonwealth.

Summary

I’ve had only a few reasonable discussions with Libertarians, which I’ve very much enjoyed. I’ve asked a lot of questions to which I’ve never received anything like a satisfactory answer. I’ve never found the position compelling.

I’ve had a lot more unreasonable discussions with people who call themselves Libertarians, and I have to say that I’ve generally had more civil and pleasant conversations with Jehovah’s Witnesses at my door. I don’t recall ever having a Jehovah’s Witness tell me that I was indulging in “stupidity on steroids.”

So if you find yourself trapped in this kind of discussion with a Libertarian and you want to get them to walk away, I’ve found the three approaches above to be pretty effective.

  1. Point out that the heroin trade is a Free Market, and it isn’t nice at all. Neither is any other Free Market — in fact, ask them to point out any Free Market that is anything like nice.
  2. Point out that, historically, high taxes on the rich correlate well with economic prosperity, while low taxes on the rich correlate with economic doldrums and even collapse. Ask them why that is so consistent.
  3. Start talking about any inherently unprofitable element of the commonwealth; anything that you get just for being a US American citizen. Ask how the Free Market would deal with it.

 

This entry was posted in General.

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