David R. Henderson  

Eugene Fama, Extreme Libertarian?

Why Not Compulsory College?... Trust, Diversity, Credit Cards...
Well, I'm an extreme libertarian, but I realize we're in a democracy, and in a democracy people can have views of all stripes and there's no reason to argue about it.
This is a quote from Eugene Fama, in an interview with Jeff Sommer of the New York Times. I confess that I don't get it. The fact that "we're in a democracy, and in a democracy people can have views of all stripes" somehow means that "there's no reason to argue about it." And what would be a good reason to argue about it? If we were in a dictatorship?

Later in the interview, asked whether he believes in a "social," aka government-coerced, safety net, Fama responds:

I think we need Social Security, things like that.

I'm a fan of Eugene Fama, as I think showed in my Wall Street Journal article on him when he won, deservedly, the Nobel Prize. But his and my views of the meaning of the words "extreme libertarian" are pretty wide apart.

Although Sommer did not challenge him on whether a forced distribution scheme from the young--and even the yet to be born--to the old is libertarian, even Sommer pointed out that Fama's advocacy of nationalizing banks is not libertarian.

Maybe, contrary to the first Fama statement quoted above, there is reason to argue about these things--if only to clear up his own thinking about the meaning of words.

One huge caveat: I'm sure Fama has had, as have I, interviews in which the interviewer totally gets the quotes wrong. If that happened in any relevant way with these quotes, or even if they're taken out of context in a way that distorts, then my apologies to Professor Fama.

HT to Tyler Cowen and Tom Nagle.

Comments and Sharing

CATEGORIES: Economic Philosophy

COMMENTS (13 to date)
Krishnan writes:

I suspect there is a lot of distortion.

Imagine this question:

"Prof. Fama, do you believe it is OK for Government to coerce it's citizens to take care of others?"

"When Social Security was signed into law, there were many more people working to support those that needed help. Do you think that program will be financially viable without major changes?" (related question "Some say it is a ponzi scheme - do you agree?"

If he is asked "Do you agree that those that need help should get help?" Ofcourse he will say "Yes" and if this is added "Social security kept so many people from dying in poverty" - he would say "I think we need Social Security" (ALL in the question and context)

I am surprised he was not asked "Do you think we should legalize "drugs" that people freely choose to use/abuse"?

(Unless of course Fama, now that he is a Nobel Laureate has taken a turn to be the next Krugman)

When Fama said "I'm an extreme libertarian" I suppose he was aware that he was speaking to the New York Times. Maybe Fama was just trying to be friendly.

People with different worldviews speak different languages. For the last 20 years I've been struggling with a question: When I know that I am speaking with someone who has a different worldview, to what extent am I required to speak in that person's language? Versus, to what extent can I honestly represent myself in the clearer terms available in my own language? I do not know the answer yet. But many times I have reached a tentative conclusion: that I need to adopt the language of my opposite.

In the worldview of the New York Times, a person who has expressed doubt about the intrinsic goodness of a government program may well be perceived as "extreme libertarian". So perhaps Fama was just trying use terms that would be understood as much as possible in the language of the New York Times.

David R. Henderson writes:

No way Fama will be the next Krugman. And I mean that mainly as a compliment to Fama. He might have simply been careless. But I think it makes sense to point that out.

Greg G writes:

Well, there are right libertarians, left libertarians, bleeding heart libertarians, anarcho-capitalist libertarians, night watchman state libertarians, anarchist libertarians and (perhaps the most common) self-identified libertarians who voted for George W Bush twice.

People use their liberties in many different ways so I guess we shouldn't be too surprised that they define "libertarian" in quite a bewildering variety of ways.

It's pretty hard to find someone who doesn't think they are in favor of liberty as they define it. And pretty hard to get them to agree on how to apply the principle when you get down to specific cases.

RPLong writes:

I'm young enough to be Fama's son, and I feel that libertarianism itself has become more extreme over my lifetime. When I first encountered it, I didn't know anyone who would admit in seriousness to being an anarchist. But now all kinds of people self-identify with that label.

@Greg G,
Let me add two subcategories of libertarians to your list:

  1. majority-rule libertarians, who believe the way to get liberty is to educate 50% of our neighbors in America, envisioning eventual victory in elections;

  2. free-nation libertarians, who believe libertarians could succeed in forming a new free nation, if we could somehow organize to that purpose. I may be the only member of this subcategory.

@David Henderson,
In my earlier comment I mentioned the difficulty of communicating with a representative of another worldview. Putting that together with your caveat "...the interviewer totally gets the quotes wrong", I find a plausible explanation for Fama's "...there's no reason to argue about it."

I suppose that a libertarian who sits down for an interview with the New York Times should feel caution. The report which comes out of this interview will very possibly attack the libertarian and his views. A worldly-wise libertarian seeks to avoid that outcome. One safe approach is to avoid concepts which do not exist in the worldview of the New York Times. Be friendly. Find common ground. Talk about the weather perhaps. This is how I understand Fama's saying "...there's no reason to argue about it."

But you, David, may not understand this felt need for caution. Since you are hardwired good at communicating across the divide, it seems to me.

ThomasH writes:

I'd like to see the model of how Social Security or any other expenditure today can transfer income from to future to the present. Tychons?

Jim Rose writes:

The article title is king of predictable markets!!!! he argues the exact opposite.

Enial Cattesi writes:

@Richard O. Hammer:

The report which comes out of this interview will very possibly attack the libertarian and his views.

I find it hard to believe that New York Times would do that. They are very left leaning indeed and sometimes I do feel a taste of vomit when I read their articles, but an outright lie?

@David Henderson:
Probably Fama applies his theories about bubbles (that they don't exist) to democracy: in a democracy there are views of all stripes which are reflected in the democratic process so there is no reason to argue about it because there is no argument to be made.
PS: I've been trying for years to understand Fama's work and, as can be seen, I still don't get it.

Martin writes:

@David Henderson

I don't think that nationalizing the banks is not libertarian when compared to the alternative. Fama made this comparison in the interview as well.

Also in the interview with the New Yorker's John Cassidy in 2010 he made the remark that the banks should have been allowed to fail.


"Some people might say one of the big lessons of the crisis is that the Modigliani-Miller theory doesn’t hold. In this case, the way that things were financed did matter. People and firms had too much debt.

Well, in the Modigliani-Miller world there are zero transaction costs. But big bankruptcies have big transaction costs, whereas if you’ve got a less levered capital structure you don’t go into bankruptcy. Leverage is a problem...

The experiment we never ran is, suppose the government stepped aside and let these institutions fail. How long would it have taken to have unscrambled everything and figured everything out? My guess is that we are talking a week or two. But the problems that were generated by the government stepping in—those are going to be with us for the foreseeable future. Now, maybe it would have been horrendous if the government didn’t step in, but we’ll never know. I think we could have figured it out in a week or two.

So you would have just let them...

Let them all fail. (Laughs) We let Lehman fail. We let Washington Mutual fail. These were big financial institutions. Some we didn’t let fail. To me, it looks like there was not much rhyme or reason to it."

Martin writes:


The key is that those who enjoy the benefits today are not the same individuals as those who pay the price tomorrow. The price in turn is paid to those who saved today so that they could consume tomorrow.

There was actually a bit of an argument on this a while ago online. See Murphy's article for a summary and links to those involved:


Richard O. Hammer writes:

@Enial Cattesi,
Take two people, a typical libertarian and a typical reporter for the New York Times. These two have different worldviews, I suppose. When they look out into the world of political economy, they perceive different activities (different nouns) and different actions (different verbs).

If you ask each of these two to write a review of a movie such as Wall Street, when you read their reviews you may think they watched different movies. Even though they both speak English, there is an important sense in which they speak different languages.

What a libertarian sees as responsible and considerate, a leftist may see as venal and motivated by bigotry. So when a leftist hears a libertarian speak, and then translates what he understood into leftist language for the New York Times, it will be very fortunate if the libertarian feels that his views have been given fair coverage.

Mark Bahner writes:
...(perhaps the most common) self-identified libertarians who voted for George W Bush twice

Can you name some names who fall into that category?

Comments for this entry have been closed
Return to top