Arnold Kling  

A Challenge to Libertarians

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Eric Liu and Nick Hanauer throw down this gauntlet:


Market fundamentalists would have us believe that our success comes in spite of government. There is literally no evidence for this. If less were always better, then the least regulated economies would be the most successful economies. The opposite holds. It is, in fact, the rules, regulations, standards, and accountability that government provides that fuel and lubricate markets. A robust state is not mutually exclusive with a free market; it is required for it. This is why there is no robust private sector on earth that isn't accompanied by an equally robust public sector.

Some responses:

1. On the whole, I would agree that the empirical evidence suggests that neither anarchy nor minarchism (minimal government) thrives anywhere. Prosperity is greatest in cities, and I agree with Ed Glaeser that cities do better with government. For a city to work, you need sewage treatment, you need well-articulated property rights, you must provide reliable mechanisms for resolving disputes among strangers peacefully.

2. That said, there is some evidence that the least regulated economies are the most successful economies. Do a Google search of "Economic Freedom." Read From Poverty to Prosperity, particularly chapter 2, which consists entirely of empirical evidence.

3. The phrase "the opposite holds" would imply that the most regulated societies are the most successful. That is clearly not the case. See North Korea.

4. Within the United States, how do we interpret the evidence? What determines the wealthiest regions? Today's Washington Post shows that the DC area is pulling ahead of the rest of the nation. This certainly shows that it is good to be the regulator, but it hardly makes a case that being more regulated is advantageous. Some blue states are the most affluent, but many are in decline. Some red states are among the fastest growing--although their growth probably lags that of the capital of the empire.

5. It is not clear, and in fact I strongly doubt, that it is necessary for the United States to be dominated by an intrusive national government, in which a relatively small cadre of legislators and technocrats makes decisions affecting 300 million people over a broad range of issues. As counterexamples to this, I offer the fact that much smaller polities (Denmark, Singapore) are able to thrive. There are successful countries where the central government is less dominant relaative to regional governments (Switzerland stands out, but I think that right now Canada is less centralized than we are).

There are more themes to the L-H article, which I will address below.

They write,


Government is what turns the jungle into a garden. To govern poorly is to "let nature take its course," which results in wild growth by a few noxious weeds and the eventual collapse of the garden. To govern well is to tend the garden: to weed, to seed, and to feed.

Compare this with my rain forest metaphor. This gets at a really fundamental issue. I do not think that government can in fact turn a jungle into a garden. L-H implicitly assume that technocrats have a lot of knowledge relative to the systems they are supposed to regulate, and I believe that they lack knowledge. This should be an empirical question, and we should be able to hash it out. I would be happy to have this debate, as long as the terms are "Do markets or technocrats work better?" Typically, progressives want to pose the question as "Do markets work perfectly?" and then declare victory when the answer is "No."

They write,


When a market is left to itself, what ensues is a race to the bottom. The government's job is to set in motion races to the top.

This is a remarkably strong assertion to make so cavalierly. The economic progress since the Industrial Revolution is easily documented. Again, see chapter two of From Poverty to Prosperity. Do H-L really think that this progress came in spite of the market and because of government? If so, then they have an enormous task ahead of them proving this assertion. If not, then they should ask themselves why this sort of claim slips into their writing.

Another excerpt:


If, as we propose, the federal government is to nationalize goals, then it needs also to radically relocalize the means-and, in contrast to the "devolution" of the Reagan era, actually provide robust funding for those local means. Obama's Race to the Top education initiative is a good example of combining leverage at a higher level of government in an area of strategic national interest with responsibility and creativity at lower levels. We would go even further. There should be strong national content standards in education, with far more federal education funding. And that funding should then go to a diverse ecosystem of educators who develop a multitude of ways to get kids to the standard. Thus, the parents at each public school should take far more ownership of the quality of the education within the building. That means having more choice about how to staff and run the school, and the style of pedagogy, but it also means taking more responsibility for the results. Creating high and common standards. Funding them fully. Pushing authority ever downward.

Why only trust parents with the "how" and not with the "what"? I am happy that H-L concede implicitly that national technocrats have no comparative advantage in telling local schools how to achieve better results. But why not go further and question the comparative advantage of national technocrats in setting standards? Is there evidence that parents want less for their children than the bureaucrats do?

Next:


At every level, we think the progressive imperative should be to shift responsibility for executing what are now government services to private competitive organizations. This can and should include non-profits

Just carry this a little further, and you will arrive at competitive government, as in Unchecked and Unbalanced. L-H are arguing for competition in the executive function of government--deciding how things get done. I say we should go beyond this, to allow competition in the legislative function--deciding what gets done. Again, if we think that technocrats lack special ability to execute, why do we think they have special ability to legislate?

Overall, I give Liu and Hanauer a lot of credit for going beyond just bad-mouthing markets and conservatives. It is refreshing to read something other than the old "We progressives want good things, like peace and prosperity, and our opponents want only bad things." When the discussion is about institutional effectiveness, we can have a conversation.

I think that our fundamental differences concern the distribution of knowledge. They write as if the knowledge of the right goals for everyone is concentrated in the hands of a few, who should set direction from Washington. i believe that all sorts of important knowledge is highly dispersed, and therefore power should be dispersed, also.


Comments and Sharing


CATEGORIES: Political Economy



COMMENTS (30 to date)
Scott Scheule writes:

"A robust state is not mutually exclusive with a free market; it is required for it. This is why there is no robust private sector on earth that isn't accompanied by an equally robust public sector."

I'd like some more evidence teasing out causality here. It seems equally conceivable that a robust private sector may cause a more robust public sector to come about (maybe regulation is something only a rich society has an interest in), without either one being necessary to the other.

But I do agree that a free market may well require a robust state: see my post, Libertarianism and a Justification of the Powerful State, here: http://distributedrepublic.net/archives/2008/03/17/libertarianism-and-maximal-state

Mitch Oliver writes:
Government is what turns the jungle into a garden. To govern poorly is to "let nature take its course," which results in wild growth by a few noxious weeds and the eventual collapse of the garden. To govern well is to tend the garden: to weed, to seed, and to feed.

It occurs to me immediately that the only way in which a jungle can be converted to a garden is to destroy the jungle. I'm still shocked that progressives either miss or gloss over the implications of such a metaphor.

mark writes:

I would respond that the quotes confuse, or are ambiguous as to whether they are talking about, absolute or relative success (ie. upon a common framework of institutions, however they are designed, some people will do better than others; is that increment th esuccess they are talking about? Or is it any and all successes against a baseline of utter anarchy? can't tell).

And they are too generalized: does "our success" mean "each person's individual success" or some aggregate measure of success that is shared? Do they mean every bit of success or some net of successes against failures (surely they don't mean that no government has ever obstructed anyone's success). Whose government in what time period? Can't tell. And what is the baseline for "government"? Is it a straw man of anarchy or something else?

Do they mean that all success is due to government and no failure is? Or both are entirely due to government? Or some amorphous some is and some isn't? Cannot tell.

Daublin writes:

This is too easy: how about recreational drugs?

To the extent governments are involved in recreational drugs, they are actively trying to shut down the market. Yet, despite those efforts, there is a thriving market. Products are bought, sold, and traded, sometimes along very long supply chains. Prices go up and down, and higher prices fetch better products and/or more convenient access to them.

Let's apply the claims they make to the drug market and see how they hold up:


"The opposite holds. It is, in fact, the rules, regulations, standards, and accountability that government provides that fuel and lubricate markets. "

No way. The government is trying to shut the market down, and the tactics they are using sound effective. Yet they can't do it even when they try.


"A robust state is not mutually exclusive with a free market; it is required for it."

If the government is trying to shut it down, they certainly are not helping.


"This is why there is no robust private sector on earth that isn't accompanied by an equally robust public sector. "

Again, no.


"To govern poorly is to "let nature take its course," which results in wild growth by a few noxious weeds and the eventual collapse of the garden. To govern well is to tend the garden: to weed, to seed, and to feed."

I don't see any sign of collapse for recreational drugs. I also don't see any sign of a few powers taking over and holding it indefinitely. Like in the American white market--and unlike in European corporate states--even the most successful dealers only seem to last a decade or two.


"When a market is left to itself, what ensues is a race to the bottom."

I don't see in what sense this would apply to drugs. Prices have neither plumetted nor skyrocketed -- they go to equilibria. Quality and safety the same; I'd guess it's probably on the rise as Americans get more affluent.


Is there a reason these authors should be taken seriously? They are saying there are no unregulated markets, when in fact they don't appear hard to find. I wish the market for pharmaceuticals worked half as well as the market for recreational drugs.

paul writes:

Gosh, i never thought about it that way... I guess he's right ; )

Evan writes:

Daublin, that post is hilarious. But I wonder if you could argue that the recreational drug market does have governments controlling it, namely organized crime syndicates? If you think about it, a crime syndicate is really just a small, tyrannical, and mercantilist government.

Do you think that the recreational drug market would do better if crime syndicates were weaker and had more trouble regulating it? I'm tempted to say yes, crime syndicates tend to be mercantilist, so they often use force to try to squash perfectly reasonable competitors. If they had less power to do that it might increase competition for drugs, making them cheaper and higher quality.

So ultimately, I agree with your arguments about drugs, I just think they can be taken a little further.

Alex J. writes:

Clearly they don't have enough equations to solve for all of their variables. This reminds me of the Green Party platform which (at one point) called for the government to take over the boards of the 500 largest corporations in the name of "Economic Democracy". For "Religious Democracy" on the other hand, they called for everyone to be free to choose their own beliefs and practices, not for the government to appoint the bishops of the 500 largest churches.

Scott Scheule writes:

Daublin,

*standing ovation*

Ned Baker writes:

Daublin and friends,

The herbal supplements market is completely unregulated. PBS Newshour showed that the majority of supplements tested contained NONE of the advertised herb:

http://www.pbs.org/newshour/bb/health/july-dec10/herbal_10-21.html

So, why hasn't the market corrected this?

I welcome the FDA to ensure my pharmaceuticals aren't made of rice and grass, like the gingko in the story.

Max writes:

Arnold, I agree that it is pretty hard to find a market without government influence and that people tend to prefer A government to NO government, but to argue that regulated economies are better performing is just false.

Let's just take the cellphone market in somalia, which is perhaps the only achievement in Somalia that has any positive feedback for the population down their. Without cellphones, life would be more dangerous and more cumbersome for thousands of people in Somalia. And this in spite of not having any well-functioning government.
You could pose this to any number of third world economies that thrive DESPITE the tyrannical overlords that rule them and the regulation in other branches which are dead silent (mobiles have the advantage of being carryable and easy to hide).

Actually, we don't even have to go far for an example of regulation and negative effects on markets and society, just look at the prohibition, which tried to "improve" health and well-being by neglecting culture and human beings. Or just compare alcohol control in different states and its price levels.

Are free markets an utopian state? Certainly not, but they are a lot more natural, tolerant and mature than the rest.

As a last point: What exactly in this does invalidate the believe in Minarchism? It actually is everything you think is necessary for a state: Providing law and order in a strict and strong sense...

Alex J. writes:

Ned,

Because there's no difference between herbal supplements that contain what they're labeled to contain and those that contain only inert ingredients. The customers are buying the label. Of course, if PBS makes a big stink over this, perhaps the label won't be good enough anymore, and supplement buyers will need to buy more expensive inert pills.

Scott Scheule writes:

In defense of Daublin,

It was the original authors who made the global statement: "Market fundamentalists would have us believe that our success comes in spite of government. There is literally no evidence for this."

So really, all Daublin had to do was provide one counterexample to prove them wrong. Daublin never made the equally bold opposite statement "Markets always work in spite of governments" or "There is (literally!) nothing but evidence that markets work in spite of government."

If he'd said the latter, then the herbal supplements example would shut him up. He didn't.

Jacob Oost writes:

As a market fundamentalist, I strongly believe, as Friedman preached, that we need the government to establish property rights, maintain law and order, and maybe provide public goods and natural monopolies (we'll have to take this case-by-case and era-by-era).

But I feel the failure of central planning for private goods (i.e. the great bulk of the economy) is so well established and documented to the nth degree that I won't even bother talking about it. I just want to make this point: Maybe the government *can* make a garden where only a jungle existed before, but maybe a jungle is what people actually want.

As Scott Adams, the cartoonist of Dilbert fame, says, capitalism is great at providing what people want but not what other people think they *should* want. Most people want cell phones, internet, and cable tv, and pay for these things, instead of buying health insurance. And the market responds as best it can.

MernaMoose writes:

There is a debate here worth having. Though I'd be surprised if any real progress was possible vis-a-vis the core liberal left.

I like Arnold's idea of introducing competition into government functions a lot. But I've yet to see very many ideas on how to do it, that I believe would actually work.

In any case my reading of history says: the problem is figuring out how much, and of what kind, of government is needed at any given moment. Assuming you can find at least a semi-rational definition of "optimum". But this matter cannot be answered once and for all. Economic behavior and technology change over time.

At risk of being stoned I'll say it again: I believe the libertarian cause would do much better, if market fundamentalists would simply concede that some things (like roads for example) cannot function according to market principles. There will never be enough real estate to build 28 competing systems of roads. Hence things like roads should not simply be tossed blindly into the "Private ownership is better!" bin, because -- a) the evidence that it's "better" is in fact dubious, and b) this is where liberals get most of their best ammo against free markets (i.e. they do it by attacking things that aren't free markets).

Beyond those areas where free market forces cannot function, the burden falls upon us to show that minimum possible government interference is best. And I believe that case can be made quite nicely.


Mark says

And they are too generalized: does "our success" mean...

If you listen to liberals, they are "egalitarian". This is code for "socialist", wherein everybody is just like everybody else. No class distinctions! No "income inequalities"! Yes they are too generalized in their definition of "success" but, the lack of clarity occurs at a much deeper level. One side is talking apples and the other is talking venus fly traps.

Tristan Band writes:

Certainly, while I don't think you should reinforce libertarian stereotypes by linking it with conservatism, I think they present a good challenge. I may just deal with their statements when I start my blog-Taking Freedom Seriously. Essentially a high-brow libertarian blog, dealing with it's thinkers; history; ideas; and deal (skeptically, though never dismissively) with various challenges.

Tristan Band writes:

Now, some thoughts...

There seems to be a confusion between governance and a heavily involved state. This is obviously an attempt at framing, and very good at that. Everyone wants good governance, with the exception of anarchists.

I wouldn't call them liberals, as that sullies a good name. I won't call them anything; I'll just deal with their claims, by helping to clarify things. For example, Sweden has a large welfare state and taxes. That tells us nothing about the size of it's regulatory state or any of the things that drives it's economy. Clearly, it is a healthy economy that supports a welfare state.

MichaelM writes:
At risk of being stoned I'll say it again: I believe the libertarian cause would do much better, if market fundamentalists would simply concede that some things (like roads for example) cannot function according to market principles. There will never be enough real estate to build 28 competing systems of roads. Hence things like roads should not simply be tossed blindly into the "Private ownership is better!" bin, because -- a) the evidence that it's "better" is in fact dubious, and b) this is where liberals get most of their best ammo against free markets (i.e. they do it by attacking things that aren't free markets).

It's worth mentioning that we don't KNOW whether roads would work better as a publicly provided good or not. There is simply no data. Roads are something that have been a state provided resource for so long, so widely, that it's just impossible to imagine them any other way. That doesn't mean there aren't other ways.

In fact, there are examples of the general category under which roads fall being privately owned. Linear, ground-based transport devices. I am, of course, talking about railroads. Early railroads in New England around the turn of the 19th century were almost entirely privately constructed and owned. More research needs to be made into this phenomenon.

Mr. Gehring writes:

I would love to see this evidence. I think they are just mistaken or ignore the empirical findings.

For papers on the causality between economic freedom and growth regard

"The effect of economic freedom on growth revisited: New evidence on causality from a panel of countries 1970–1999 ( Justesen , 2008)

or

Economic freedom and growth: Decomposing the effects (Carlsson 2003).

In general one should be careful to make generalized judgements. It seems that some factors really contribute for growth, and others don't. A bigger government size is in most cases connected with more regulation and less economic freedom, which negatively affects growth (Exceptions Singapore). The mistake in some empirical analysis is to regard both as independent. If the studies use large cross-country samples, there are also many countries where a small size of government goes along with civil disorder and a lack of property rights (Africa).
Besides poor economic growth it should be remembered that more government interference can have negative effects in addition to hampering economic growth. It deprives people from choosing how to spend their own money. Even if that does not hurt growth, it might reduces utility and well-being. Have a look at

The bigger the better? Evidence of the effect of
government size on life satisfaction around the world( Bjørnskov, 2007)

Hope that has helped the discussion, I couldn't read all the earlier posts. Regards

MernaMoose writes:

MichaelM,

It's worth mentioning that we don't KNOW whether roads would work better as a publicly provided good or not. There is simply no data.

I agree. The lack of clear data is why I said it.

I'm all on board with the idea that competition can bring the collective We good things. But it gets all murky in those corners where competition ranges from hard to impossible to come by.

One example comes to mind. Western Europe has done some smart and interesting things with district heating/cooling systems, that you won't find the likes of in the US. In most ways I'd give "the American way" the advantage, but there are a few places where I'd say the Europeans have actually come up with a better answer.

Of course, with modern environmental regulations, I doubt the Europeans could repeat their good results today. I'm fairly certain it couldn't be done in the US today.

paul writes:

It always comes down to advocating force or coercion on peaceful people. I don't think initiating force is morally or practically right. Those who advocate using force don't feel the need to demonstrate with any degree of certainty why force is necessary (e.g. the case of public roads). And even more disappointing is that even given their justification for using force, they are uncritical (even sympathetic to the point of worship) of the institutions that administer the force. I'd be much less suspicious of "their" ultimate intentions if they shared some of my fear of governments.

John writes:

Funding education (and defining goals) from the top down, while granting authority for implementation to the bottom up? Isn’t this the very definition of non-sense? The authority grantors will simply compel lockstep conformity of process through the power of the purse.

Jeremy, Alabama writes:

I can forgive Liu and Hanauer for attacking a strawman version of small government, because libertarians leave themselves totally exposed to this. When Bryan lead us through Rothbard's book, I was shocked how much time is wasted on bizarre non-starters like private courts, when the simple question ought to be: Should there be more government/more spending/more regulation compared to RIGHT NOW, or less? You don't have to be a libertarian to believe government has jumped the shark.

Tristan Band writes:

Ah, the peaceful people argument.

Look, paul, moralizing is what makes them laugh because they don't accept our premises. They laugh because we exaggerate. They laugh because libertarians refuse to present (perhaps because they don't want to admit it to themselves) the fact that there is a vast gradation of opinion within the libertarian community.

If people don't share your moral premises, then you aren't going anywhere.

Tristan Band writes:

Ah, the peaceful people argument.

Look, paul, moralizing is what makes them laugh because they don't accept our premises. They laugh because we exaggerate. They laugh because libertarians refuse to present (perhaps because they don't want to admit it to themselves) the fact that there is a vast gradation of opinion within the libertarian community.

If people don't share your moral premises, then you aren't going anywhere.

The_Great_Crash writes:

Why do so many people assume Libertarianism is about the end of regulations? It is not, but it states that government policies must focus on protecting freedom, making sure that no one is forced into a transaction, and that all the parties entering the transaction have the same amount of information on hand. Libertarians do not support deception or fraud.

paul writes:

Tristan, I wasn't trying to make an argument. It was just an observation. My point is more that trying to defend various degrees of coercive intervention is generally futile. The arguments should ultimately end up defending (or refuting) the initiation of force and the mechanisms (institutions) the administer that force. and even granting that coercion is permissible I'd like to see an more sincere discussion from the statists (both left and right) on safeguards from abuse.

Tristan Band writes:

Okay paul, let me see if I understand you. You argue that trying to defend varying degrees of force initiation means having to justify them. If one justifies them, then one must propose safeguards against abuse of them. Am I right?

Dale Moses writes:

When I read your points 1 and 2 I have to stop and wonder what in the world the difference is. How do we define economies to not include cities and how do we include cities to not include economies?

It would seem to me that they are fundamentally the same thing.

____________

Re

"It's worth mentioning that we don't KNOW whether roads would work better as a publicly provided good or not. There is simply no data."

No, we have tonnes of data, it is simply uniform. People are entirely free to purchase land and build roads if they want to. That they don't, that they did not before we had the NHS, is an exceptionally good indication that the private sector will not supply it.

Your claim is like saying "we can't tell whether or not private industry can send people to the moon as well as public industry because no private industry has sent anyone to the moon". Its like saying "we can't tell whether or not men can have babies or not because its never happened".

I think your misunderstanding stems from a statistical method problem stemming from uniform data. But in this instance we don't have uniform data, rather "public/private" can be examined as a dummy variable, which removes the issue. The problem with finding the data when no one builds public roads then is determining the optimal amount of roads and thus finding the zero data points of private industry not building them

Of course a simpler way is to just take the absence of private roads as evidence of the liklihood.

____________

In general one should be careful to make generalized judgements. It seems that some factors really contribute for growth, and others don't. A bigger government size is in most cases connected with more regulation and less economic freedom, which negatively affects growth (Exceptions Singapore). The mistake in some empirical analysis is to regard both as independent. If the studies use large cross-country samples, there are also many countries where a small size of government goes along with civil disorder and a lack of property rights (Africa). "

I am not sure what you are saying here? Can you elucidate a bit here?

I read the abstract for the carlson paper and it seems to be saying the opposite of your quote.

I.E. Carlson separates out measures of government. Your quote seems to be saying that we can't separate economic freedom or the size of the government from the quality of property protections, and if we do that we get obvious results which don't actually tell us anything; we are interested in the tradeoff as government gets larger and not the specific effects with a hypothetical example that might not be able to ever occur.

paul writes:

Tristan, essentially yes. not necessarily that one must but I think anyone seriously advocating initiating force should be very concerned about granting that power. In fact I personally don't think that power should be granted at all.

mick writes:

Switzerland, The Netherlands, Hong Kong and Singapore must be "outliers" then.

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