Does Libertarianism Actually Work?

A graph of US government revenue and spending vs. President since 1964—click for a larger view.

In my previous Why Does Anyone Vote Republican Any More? post, I exploded the commonly held myth that the Republicans are more fiscally responsible than the Democrats: indeed, with the rise of neo-conservatism since Reagan, they have been by far the most fiscally irresponsible governments in US history. Perhaps even more remarkable though is the fact that the Clinton administration was actually very fiscally responsible: by the end of his term, he had brought increases in debt down to almost zero (0.32%), and if the Democrats were elected for another term, we very likely would have seen the first decrease in national debt since 1961. But instead of course we got George W. Bush, who has brought debt up to such an astronomical level, that 10% of the US budget is now devoted to servicing it—one can only imagine what will happen if and when interest rates go up significantly.

In spite of these facts however, there is still a hard core of Republicans who will continue to vote for them, no matter what. I doubt there is anything anyone could do or say to turn these people around, but fortunately, they will not decide the outcome of the November 4 election. Nor for that matter will hard core Democrats. The people who will decide it are those in the middle: the swinging voters, and those who might vote independent or for a minor party. Amongst these, perhaps the most significant group are Libertarians. It seems they are basically made up of two types of people: disenchanted Republicans who are not happy with the extreme fiscal irresponsibility the neo-conservatives, and idealists looking for an alternative to the major parties, as they are disenchanted with both of them.

But what is Libertarianism, and does it really work? Basically, it is the idea that government should be as small as possible, with minimal taxes. Services should be provided by private enterprise, not by government. But doesn’t this sound familiar? Of course it does: it is the stated electoral platform of the Republicans! Reagan was elected on the idea that “the government doesn’t solve problems—it is the problem”. And in a sense he delivered: he cut many government services such as Medicaid, Food Stamps and education, and slashed taxes across the board (although the vast bulk of these cuts went to the rich). That’s why he won the 1984 election by the biggest landslide in US history (it seems Americans really hate taxes!). The result? 2.6 trillion dollars in debt—260% more than all the debt accumulated by all the previous Presidents of the United States combined! And of course, George W. Bush has basically done more of the same, by slashing taxes for the rich and government services even further. The result? An increase in government debt of half a trillion dollars per year!

It’s all very easy for Libertarians to sit back and say both major parties are wrong, when they know very well that their party will never actually have to be tested in office. And as we’ve already seen, when Republicans have tried to apply Libertarian principles, the result has been a massive increase in government debt. Of course, Libertarians will say the government still hasn’t gotten out of the way of free enterprise enough, but once again, that’s very easy to say when there never has been (and is never likely to be) a Libertarian government. All we can do is look at the results of the deregulation of services that has already taken place, and quite frankly, the record’s pretty appalling. The current financial crisis should be proof enough that deregulation of the financial system has already gone way too far, and fixing the problem has basically meant that government has had to buy it out. The privatisation of utilities has had pretty disastrous results in many countries where it has been tried as well—witness the California electricity crisis, for example. And the US probably has the most privatised health care system of any first world country, and it very likely has the lowest health care availability of any first world country as well—it is basically only available to the highest bidder. Where is there any evidence that private enterprise can be trusted to deliver basic services at all?

It is interesting that Libertarians consider themselves to be the “middle ground” between the two major parties, when their ideas are in fact very extreme—indeed, they are in a sense just one step short of anarchy. On the other hand—due to the general shift toward the right of all politics across the western world since the 80s—the “left wing” parties have actually become quite moderate: for example, the labor party here in Australia, “new labor” in the UK, and the Clinton administration in the US. And not only did Clinton bring government debt accumulation down to almost zero, he also created what is widely regarded as the strongest economy the US has ever seen. He structured the tax system to benefit those who spend the most money (the middle class) the most, which actually created a better business environment than has been the case under any Republican administration, despite nominally “higher” taxes for the rich (as history shows, any increase in taxes was more than offset by increases in profits). It was the kind of economy where everybody won (at least relative to any Republican administration): the poor, the middle class and the rich. In short, almost every time a government has moved toward a Libertarian ideology, the results have been terrible, whereas the modern Democratic party has a proven track record of delivering a strong economy, with low debt.

I think the reason that people are attracted to Libertarianism despite the objective evidence is that we all want to think there is a simple ideology that solves all of the world’s problems. And I think the fact that communism has been tried and has failed naturally leads a lot of people to think that the opposite approach—unrestrained capitalism—must be the way to go. In my opinion though, what I think it actually proves is that extreme ideologies of any kind don’t work. People can be very greedy and selfish, so unless there are checks and balances, corruption is inevitable. Communism failed because of the lack of accountability, and our attempts at unrestrained capitalism have shown that it quickly gets out of control without checks and balances as well. I think we need to have a balance between government regulation—when that government is answerable to the people, so democracy is essential—and free enterprise. Ideally, I think we should have government owned, corporatised companies competing with free enterprise in all essential service areas. This naturally leads to an environment where neither one of them gets out of control, or moribund. The government (hence taxpayer) owned company will ensure the minimum service standards expected by voters are met, while free enterprise will provide competition which will keep prices down. Not only that, but these corporatised companies will deliver their profits to all citizens, rather than just a few shareholders.

But how do we know such a system will work in practice? Simply by looking around the world. The countries whose social and political systems come closest to this sort of model, such as Australia (despite John Howard’s attempts to turn it into America), Canada, New Zealand and especially the Scandinavian countries are consistently rated the highest on most socioeconomic indicators. The Scandinavian countries in particular have very strong public sectors (along with quite high taxes to support them), but they are constantly rated as amongst the best countries in the world in terms of general happiness, health, crime rate, education, employment levels, working conditions, income equality, living standards per capita and science and technology per capita (interestingly, they are also amongst the most atheist and agnostic countries in the world!). And lest anyone reading this thinks such a system will naturally lead to corruption, they are even ranked as amongst the least corrupt countries in the world (I am happy to say that Australia also ranks very highly on most of these indicators as well). Of course, none of this necessarily means such a system will work in the US, but at least it has been shown to work extremely well—several times over—while Libertarianism has never been shown to work at all. Besides, when the US had a more even tax distribution such as they did under Clinton, they had a better economy for all Americans, including wealthy businessmen—and that’s what they’d be returning to under Obama.

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Oh yes: one other thing libertarians fail to consider is that, because the US already has such a huge debt, taxes will be necessary for many years to come, simply to pay all that debt off. The economic policies of Reagan and Bush have effectively stolen money from future generations of Americans.

  
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Sachiko’s essay takes us through an instructive “gallery of forms”. This is like a modern Plato on the scene with his laser pointer performing a virtual display of his “allegory of the cave”. One very ironic thing is that we at last see, quite cleary here, that “Capitalism” (after Bush et al) and “Communism” (after Stalin et al) both end up on the same side of the creek as to reasons why they “don’t deliver”. Historically, we find they both have the same intellectual roots in the misleading claims of Adam Smith, which were reverently quoted by Karl Marx. I’ve read other commentators over the cold war years that said that Soviet Communism was really just gross fascism heavily promoted with liberal-sounding humanitarian propaganda. And, the Soviet thing was actually the very summit of capitalism, that being STATE capitalism — the ultimate monopoly, and ultimately successful hostile takeover by corporate entities.

I vaguely remember some visits and presentations by “libertarians” on US university campuses (1970s?). The kind of messages I heard quoted from such gatherings led me to consider that “liberal” and “libertarian” can mean quite different things in different cultures and in different historical periods. Typically, though, economic planning did not seem to be their strong point. I remember associating the name with lawyers that volunteered to defend people that faced arrest and imprisonment for sexual deviations and other blue-law crimes, that were enforced capriciously or in a discriminatory manner. They seemed to be good at ferreting out hidden threats to Constitutional principles, and suggesting legal remedies, but seemed not enthusiastic about broad-scope political campaign strategies that have been traditionally available. The libertarians you speak of seem to be from a set that is not at all well informed as to modern mathematical work (eg Nash et al) that has challenged and beaten up those simpleminded Adam Smith dissimulations. And (my thanks to Sachiko for showing this particular chart) the hard data, showing performance as a function of theory-mix (via political party) chosen, of course, backs up Nash’s mathematical cogitations very impressively.

Unfortunately, I believe we are facing a world-level attempt at another Soviet-style hostile takeover. In the realm of economics, the continuing bail-out strategy of current US leaders is seriously aiding and abetting this process. The recent 0.7 trillion$ action, I recall, handed a huge proportion of its spoils to so-called “British banking interests”, which would be found to be always “offshore” if anybody in the US or UK should go looking for some kind of back taxes or some kind of redress in the courts. At the same time, notice that good old JP Morgan (-Chase?), as of old, has been gobbling up the failing banks with huge hunks of US treasury pork thrown in with each bite (witness Bear-Stearns’ collapse, then WAMU, etc.). That has to be approaching monopoly conditions, which I’m sure runs afoul of British and Australian public laws, as well as US antitrust legislation… and nobody seems to be able to do anything about it. At the same time, there has been a huge surge in new military adventures — for which one might well ask who financed or set up causes for these adventures.

  
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Modern Plato? :oops: Actually, I really can’t take credit for the excellent research – as usual my editor and webmaster Lee dug up all the facts and figures I needed for these articles, so you’ll have to give him credit for that. Actually, I think I’ll have to do a post about the huge contribution he makes to all the stuff I do after the election – I really couldn’t write so authoritatively (and well) without his help!

  
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This is great teamwork! I will need to save these essays, or their URLs, in a safe place, and hope your keep up your website.

The Libertarians, I now recall more clearly, drew considerable fire from the young editor of the student newspaper on Oregon State U. campus (when I was in grad school there in the early-mid-1970s). The editor appeared to be one of those “quasi-religious JSP” types — a rather athletic, brusque, no-nonsense god-and-country guy. He repeatedly referred to Libertarians as “libertines” in his articles, and took a hard-line stand against US draft-card burners (and bra-burners also, I suppose) in the wake of the Vietnam war. The Libertarians on the scene in those times had a serious and viable interest in Amnesty (eg for draft dodgers, those with connections to both sides in Vietnam, and a wider range of divisive issues). I remember being disappointed with that editor’s coverage of the presentations. But economic theory was mostly absent from those Libertarians’ menu, I’m quite sure.

  
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As a Libertarian, let me first of all say that this a fantastic article, and I agree completely that the Democrats have been MUCH more fiscally responsible than the so called “conservative” Republicans. However, I’d just like to point out that most Libertarians actually are strongly apposed to government deficits. In a hypothetical Libertarian administration, both government spending as well as taxation would be low so the enormous budget deficits would no longer occur. Of course, if a Libertarian president was really elected who knows if he would succumb to the same temptations as Republicans do, but at least, in theory, it could be a financially stable system.

  
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Thanks for your comments Willis. But as I say in my article, I understand that that’s the way it’s supposed to work in theory, but that was the way it was supposed to work under Reagan as well – and look at the results! The fact of the matter is – in terms of what has actually been done – when people have tried to apply libertarian principles, the result has been disastrous. Of course, that doesn’t necessarily mean it can’t work, but it sure doesn’t look good! I just don’t know if the sort of “small government” that libertarians want is actually possible, at least at this stage in our history.

  
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Originally Posted By Sachiko
Thanks for your comments Willis. But as I say in my article, I understand that that’s the way it’s supposed to work in theory, but that was the way it was supposed to work under Reagan as well – and look at the results! The fact of the matter is – in terms of what has actually been done – when people have tried to apply libertarian principles, the result has been disastrous. Of course, that doesn’t necessarily mean it can’t work, but it sure doesn’t look good! I just don’t know if the sort of “small government” that libertarians want is actually possible, at least at this stage in our history.

Certainly not at this moment, not with the debt you mentioned. However, Sachiko, you fail to mention that Reagan cut taxes, & only cut DOMESTIC spending. He spent billions on his star wars initiatives, putting nukes in Western Europe, a program thought to be safely in the politcal wastebin, until W revived it. That is far from Libertarianism, and as a matter of fact, the main source of the ballooned US debt!

I had a whole blog sized response ready for this, but it mostly constituted taking alcove to the woodshed for his sycophantic and under-researched comments, but, seeing he went to school in the 70′s, I’ll chalk it up to that & let it slide :)

  
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Yeah, the particular 70′s campus scene that I saw was truly an extremely poor venue in which to learn anything (let alone research anything) about the overall history and economic philosophies of authentic Libertarians. The memory of that scenario is not very pleasant. The campaign statements of contemporary presidential hopeful Bob Barr also further muddied the waters for me; I have read some commentaries (just Google it, folks!) that tell me I’m not alone in getting smoke in my eyes because of what Barr apparently thought he had to say to get some votes. So, I am glad to hear from folks like Willis, above, that seem realistically informed and lucid; these encourage me to look further.

I would say that what Republicans are doing in contemporary government is NOT authentically Libertarian, whatever else it might be. I would make that assessment quite emphatic in light of this presentation by a well-informed and benevolent Libertarian:

http://www.isil.org/resources/fnn/2007sept/text-wmsbg-speeches/butler-shaffer.html

Willis, there seems to be a very interesting dichotomy between “Hamiltonian” and “Jeffersonian” economic theory that appears to be pretty much unresolved since pre-constitutional times in US history. And when I speak of Jefferson thusly, it seems I have to be speaking of a “pre-Democratic” Jefferson, whose notions of economy transcend the particular constitution and its “implied powers” that we have lived with in the US (under FDR included). It seems that the “Jeffersonian” approach (more likely to be authentically Libertarian) became “obscure” since then, because it was never given any sort of a fair trial, or even a fair hearing. Any thoughts on this?

  
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For the most part, the U.S. Gov’t and American people only pay lip service to capitalism. They’re afraid of it.

Plus it would demand thought and reason and choices and responsiblity…all of which are so prevalent in U.S. society.

Atlas will shrug.

  
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I agree that the Libertarian party is no better, for the most part, than the big two. However I disagree that the ideals of Libertarianism are no better than that of the Democrats or the Republicans. There are a good sect of liberty-minded people/activists (who actually just like to be called freestaters or some other names so as to not be associated with the Libtertarian Party) who have a lot of ideas and are doing grassroot movements that are far more effective than what the Dems and the Reps have to offer. Just check out sites like LibertyConspiracy.com, FreeKeene.com, freestateproject.org and of course freetalklive.com just to get another perspective on what Liberty minded people are doing to make their society better and less oppressive.

  
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