Libertarianism


Sam Hammond of the Niskanen Center wrote an excellent piece analyzing the under-appreciated complementarity of a strong social safety net and free market policies. Separating labor market and business regulation from social spending, Hammond goes on to argue that there is a steady equilibrium correlation between how free a country’s economy is and how generous their social safety net is. While I applaud his line of thinking on how free market policies and social insurance can be mutually reinforcing, I am not as convinced that there is necessarily a strong equilibrium relationship between the two, nor that the US is in an unsteady state that could lead it down the road to further reactionary populism.

Why the Market Economy Benefits from a Strong Safety Net

As an economy grows and adapts to changing demands, Joseph Schumpeter observed, a process of “creative destruction” leaves newly obsolete industries and skills in the dust. The displaced workers from this process can be enticed by populist revolts that threaten to counteract the productive forces of a market economy. Hammond’s paper “argues that the countries that have eluded Schumpeter’s dreary prediction have done so by combining free-markets with robust systems of universal social insurance.” In other words, if any polity wants to enjoy the fruits of a well-functioning market economy, it needs to cushion the blow for those that are harmed by the inherent dynamism that allows it to prosper. With its relatively stingy cash benefits, the United States is at risk of sliding into a policy environment that removes its unique dynamism.

Hammond argues a more generous social safety net can complement, rather than work against, the power of markets by, among other things: 1) promoting entrepreneurial risk-taking by spreading out risk across society; 2) address the painful adjustment costs embedded in a dynamic globalized market economy; 3) replace policies that ostensibly increase economic security but inevitably decrease economic flexibility; 4) increase labor market flexibility by detaching “important social benefits…from any particular employer or market structure.”

The False Dichotomy of Economic Policy-making

Many tend to incorrectly see economic policy regimes as necessarily being a bundled package. One political party may favor stronger unionization, have a more interventionist approach to industry, a more progressive taxation scheme, and a more generous welfare state, while the other wants to decrease the power of unions, privatize more government functions, lower top marginal tax rates, and cut social spending. In reality, it’s not one bundle or the other. It’s possible to have a generous social insurance system as well as a lightly-regulated economy. Hammond makes a distinction between a Swedish “social insurance state” that has generous social insurance policies but a relatively unregulated marketplace, with a Venezuelan “interventionist state” that relies on nationalization and inflexible labor markets. Both can be referred to as “socialist” or “social democratic” in political discourse, but of course their policy combinations are far from identical. The ideal scheme, according to Hammond (and one I agree with), is one that combines the powers of the market economy with a generous welfare state.

[As a slight aside, this overall point is something I want to increasingly shout from the rooftops. Opponents of “capitalism” or market economies tend to associate pro-market reforms with skimpy welfare states, neoconservative foreign policy, and low environmental regulation. The Niskanen Center is great at producing work that combines ideal policies outside this false dichotomy.]

What Economic Freedom Should Really Mean

Often times, country rankings of “economic freedom” from the Heritage Foundation or Fraser Institute imply a necessary bundling of economic policy decisions. Both of these foundations, Hammond notes, value economic freedoms related to economic regulation, but they also value low government spending and skimpy social safety nets. To better get to an analysis showing the kind of government presence he’s talking about, he develops an index that separates social expenditures and pro-market institutions from “government size.” The economic freedom index thus values government transparency, rule of law, and regulatory efficiency while the social welfare index suggests higher income transfers. Economic freedom does not need to mean low taxation and social spending. We’re left with this graphic:

Screen Shot 2018-05-08 at 10.47.48 AM

The graphic suggests a correlation between his measure of economic freedom and income security. But instead of just saying this is a correlation, he believes the relationship is in fact an equilibrium, and countries that diverge from the path by becoming either economically less-free or decrease welfare spending are at risk of falling down the path to populism found in the bottom left quadrant. In theory, these countries are in disequilibrium, as I see it, because an economically less-free country with generous welfare spending would have low-growth that couldn’t support its welfare state. Meanwhile, an economically free country with skimpy benefits wouldn’t be able to cushion the blow from an ever-changing economy.

But is there a Steady-state Equilibrium?

This is where I’m skeptical. The United States is a significant outlier here. An atypical amount of our government spending goes towards military ventures, but I don’t think that collapsing military spending would result in a more generous welfare state. I’m drawn to this Glaser et al paper suggesting that skimpier US welfare state spending comes from historical and cultural realities that are hard to undo by overnight Federal policymaking. Specifically, the paper suggests that “racial fragmentation is a powerful predictor of redistribution” across countries, and America’s cultural/racial heterogeneity could lead to an unwillingness to provide strong social welfare benefits that is difficult to overcome. The United States is atypical in many regards to other OECD countries, and a big difference is this diversity. Scandinavian countries with relatively homogenous populations could be seen as more willing to provide a social safety net because people perceive their tax dollars as going to people just like them. Countries like Italy or Spain, with relatively less national unity than Denmark or Norway, have administratively weaker welfare states.

Although Nordic countries have recently experienced a surge in “otherness” migration – and with significant frictions politically as they try to protect their natives and welfare states – it’s not clear to me that the dust will settle with these countries having their generous welfare states remain in place. I don’t mean to argue against diversity or say it can’t coexist with strong social spending; instead, I want to assert the common tension between the two and point out that America’s atypical cultural heterogeneity could be an endogenous force working against political willingness to increase social spending. Further, as Hammond notes, Sweden was in an equilibrium in the 70s and 80s more in line with the bottom left quadrant of his graphic than the top right. A particularly bad recession in the early 90s shocked the country and resulted in liberalization of markets but preserved strong social insurance programs. But if Sweden can suddenly switch quadrants, what makes Hammond so sure it can’t just as easily switch back?

A further argument against the inevitability of this equilibrium is in the United States’s long history. Sure, countries in the Anglo world are today on a more authoritarian path with Trump/Brexit than many other OECD countries, likely stemming from an inability to protect citizens who were displaced by globalization. But the United States has never had a particularly strong welfare state? The “pull yourself up by your bootstraps” mentality is a part of what is deemed American exceptionalism. The United States transitioned from an agricultural country to industrial without falling out of this bottom right quadrant. The transition didn’t come without side effects – agricultural subsidies today can be seen as a historical concession towards farmers harmed by the change – but the United States still never left its unique quadrant. Now, maybe I’m oversimplifying United States economic history here, or not involving the nuances of European economic history either. But if I really am misunderstanding history, it begs the question of whether Hammond can show that his graphic is robust enough throughout time in order to prove that this is indeed an equilibrium.

To say that a more robust welfare state counteracts the forces that led to Trump and Brexit also seems like a stretch to me. Specifically, Hammond believes that a well designed welfare state could alleviate “search and adjustment costs…with a system of subsidized employment for the long-term unemployed, combined with job search and relocation supports for geographically locked workers.” I’m skeptical the proverbial rust-belt Trump voter that used to thrive in a coal-fueled world or manufacturing-based American economy will be helped much by this. These workers have a strong connection to the identity their job provides them. I don’t just mean the purpose or community employment gives them. A coal miner isn’t suddenly going to become a male nurse just because that’s where the economy is producing jobs, no matter how much assistance the government gives them. The assembly line worker in West Virginia isn’t going to start to learn Python and move to Silicon Valley. The fact of the matter, as I see it, is that the economic displacement from globalization and automation interacts with a stubbornness of human nature that leaves many workers potentially unable or unwilling to participate in the new economy, regardless of government support. [I’d note that this job-identity relationship extends to professional-class workers who probably refused to work retail jobs during the Great Recession. Our employment opportunities are tied to how we see ourselves, and I think government spending can only do so much here.]

Hammond writes that “unregulated open economies are vulnerable to reactionary populist backlashes when the forces of creative destruction leave large swaths of society behind.” But take a look at his graphic showing OECD countries and their level of “cash minimum-income benefits.”

Screen Shot 2018-05-08 at 11.06.36 AM.png

Greece paints a picture of an unstable populist backlash, but what about other countries on the left-side of this distribution? Is Canada unstable? South Korea? Hong Kong and Singapore are atypical city-states, but I don’t see them as being at risk of going in a more authoritarian direction, either. Perhaps it’s possible for countries to exist as free-market states without having pressures to increase its social welfare spending. History, culture, demographics, or even size/government setup – something particularly unique about the United States – could lead countries to a steady-state outside the correlation Hammond’s graphic suggests. And if there is no equilibrium, can we really think of these as being necessarily reinforcing rather than just a correlation?

How to Improve American Social Insurance

Outside any theoretical equilibrium, I would like to see the policies Hammond argues for. While I may not be convinced the United States must do this in order to avoid becoming more of an authoritative populist country, I still believe a stronger safety net can complement the wonders of the market economy discusses previously. So how can the United States transition into more a top-right quadrant country? Hammond argues that social insurance schemes can be more politically viable and successful if they are designed to be “neutral” and “universal.” It’s important to be neutral – in the sense that as little as possible is left up to the discretion of policymakers that will likely pander to special interests – to avoid favoritism and cronyism. It’s important to be “universal” because programs perceived to be designated only for the poor are typically poorly-run and underfunded. Making social insurance schemes something that everyone benefits from and pays into will ensure more forces that lead to beauracratic quality and efficiency. Federalism and American attitudes could make this a relatively difficult process, but still one worth pursuing.

Advertisements

I didn’t vote for President last time. A lot of people find this repugnant to some sort of degree. After all, the right to vote is something that people have risked their lives for over thousands of years to secure. Meh, so what.

I believe that a “reckless vote” is a lot worse than a “non-vote.” I think that a lot of people who vote do it based on bad reasons. Studies show that a decent chunk of people vote for candidates based on their personality only. That’s a reckless vote. I think that the large majority of voters are not as informed as they should be. Does anyone think that more than 0.1% of people voting for the Cook County judges to it on anything more than the Chicago Tribune endorsements and/or party affiliation? Am I obligated to vote just because I am a citizen? I believe voting for President is somewhat inefficient and irrational because my vote will not make a difference. I am registered to vote in Illinois, where Barack Obama will surely win. In that case, my vote is only going to be a “moral support” type thing and, frankly, I don’t want to feel in any way responsible for some of the policies he does.

Well, someone has to win Will, so you gotta vote for somebody. So do I have to vote for the lesser of two evils? Maybe I’ll vote for Gary Johnson. Johnson is the Libertarian Party nominee. He also happens to be a successful businessman, a popular ex-Governor of New Mexico, and the highest elected official to ever call for an end to the War on Drugs. Johnson ran for the GOP nomination but never had the chance to pick up steam because he was shut out of the debates. But at the end of the day, if I vote, I can realistically choose between voting for one of the two candidates who have a shot at winning or a candidate in hopes of increasing LP’s federal election funding.

I also think that voting, and democracy in general, have little to do with how “liberal” America is. A ranking of the freest and most democratic countries in the developed world shows a weak correlation. America isn’t too high on the democratic list compared to other developed countries, but also has some of the most permissive speech laws and economic liberties. I’d explain democracy and liberalism as a correlation thing, not a causation thing. America has the laws that it does because of our culture and history, not because we are all huge participants in the great government machine. Proponents of democracy don’t like to talk about ‘illiberal democracies’ like Russia that have formal schemes that resemble democracies but give terrible results.

So, why vote? To get better policy? In my case, Illinois will go easily to Obama. Because I have a moral obligation? Ok, then I’ll vote for a third party candidate that I genuinely am enthusiastic about.

Even Gary Johnson has ideas I disagree with. Hell, if I ran I’d probably disagree with myself. So every candidate is the “lesser of x evils” to the extent that no candidate will ever really be 100% in line with one’s beliefs. So when’s it appropriate to not vote, and when is it appropriate to just vote for one of the major party candidates? We’re not dealing with a Hitler vs. Stalin situation here, but I think most people agree that situation would warrant some sort of non-vote (in addition to a major uprising). So there’s a gray area. My next post, which hopefully will come soon, will deal with whom I would vote for in Barack vs. Mitt.

Loyal Upset Patterns reader Peter recently sent me an article about the relation between money and happiness. The article cites research showing that up to a certain point ($75,000), more money does tend to correlate to a higher self-reported satisfaction of living. I took a few lectures of “economics of happiness” in college and there were a few things I gathered from them. First of all, anything related to people’s well-being can be difficult to quantify when it comes to something as subjective as self-reported “happiness.” One’s happiness could be overstated because they have convinced themselves their wealth is making them happy. Similarly, one’s happiness could be understated because of an irrational level of discontent with their surroundings. The happiness surveys that I am familiar with ask a handful of questions and ask the participant to answer them on a scale from 1-7. Doesn’t that sound like a situation ripe for error? I think there are so many problems with trying to quantify happiness that all I’m going to say is that anything related to it should be taken with a large grain of sodium chloride.

The Coding Horror post that Peter sent me goes on to give some prescriptions for how to make people happier. While I agree with the basic gist of all of them, my number one task is not to argue with them. Instead, I’d like to focus on the bigger point: money can buy happiness! The fact that there is a pretty strong correlation between money and happiness (even if up to only a certain point) should be a pretty good case for the efficiencies of capitalism rewarding hard work, smart investments, and creative talent. After all, isn’t it a strong merit of a system if it makes people happier by doing well?

Critics of America’s ‘capitalist’ or ‘materialistic’ lifestyle like to point out how the developed world is not that much happier than the developing world. But that’s an oversimplification. Ok, money doesn’t solve all your problems; in fact, it causes a lot of them. But lack of money is an even bigger problem. Financial instability, lack of access to education and healthcare, and literal poverty cause a tremendous amount of dissatisfaction in America and the world. Absolute wealth doesn’t have a huge linear correlation with happiness. Maybe we can manipulate the data to see that money earned buys happiness. Or maybe it really is all about relative wealth, as many studies have hinted at.

I’m not totally sure how to dissect the data regarding income and happiness. The research is blossoming and I look forward to seeing what it uncovers. But I believe for the time-being it is safe to say that the capitalist mantra of hard work rewarding a good lifestyle holds true. Yes, there are the idiots that are insanely money-driven and miserable, and there are people who are perfectly content with very little income. But the point still holds that there is a strong positive trend between happiness and income.

That being said, I believe that we need to start measuring quality of life by a more sophisticated measure than Gross Domestic Product. Bhutan has even started reporting a gross national happiness. Perhaps Human Development Index (HDI) factors like literacy rate, gender equality, life expectancy, or other quality-of-life proxies are a better way to gage standards of living. The weaknesses of GDP measurement have always been around but I believe they are getting even more relevant. Writing this blog is giving me utility and, hopefully, reading this blog is giving you utility. But there is no market transaction and thus GDP has not gone up. A lot of user-generated utility on the internet takes place with no market transactions and is totally ignored in GDP.

One of the uglier moments during last night’s Republican primary debate came when, in response to Ron Paul’s claim that the government should not be in the business of providing health insurance, Wolf Blitzer asked, “are you saying that society should just let [a sick person without insurance] die?” and some knuckle-dragging spectators enthusiastically whooped, “Yeah!” Ron Paul responded, more reasonably, that private charities should support people who fall through the cracks.

Jacob Weisberg, writing in Slate, responds,

This was indeed an appalling, mob-mentality moment—more medieval, even, than the crowd applauding Gov. Rick Perry for winning the death-penalty derby at the previous debate. What it clarified, however, was less the cruelty of the Tea Party crowd than the absurdity of the health-care positions of all of the Republican candidates. The GOP contenders relentlessly attack “Obamacare” as “socialized medicine.” But they won’t speak up for either of the other two choices available to them: the arguably more socialized system we have hitherto lived with or the Blitzer option of letting the uninsured die in the streets.

What about private charity?

“[W]e no longer have an extensive system of charity hospitals. If emergency rooms treat the uninsured, whether because of a legal requirement or because they are good Samaritans, they will be passing the bulk of the cost along to the rest of us—and we’re back to our current system of socializing the costs of treatments for the uninsured.”

I just can’t help but feel frustrated when “the government shouldn’t provide x” is conflated with “society shouldn’t provide x”. Idiot spectators notwithstanding, saying that society should not provide health care to people who can’t afford it and will die without it is plainly absurd and immoral. Saying that the government shouldn’t provide health care because health care is better provided by institutions other than the government is an empirical claim.

Now, although Weisberg conflates these two positions throughout the article (for example, that our two health care policy options are the  “socialized system we have hitherto lived with or the Blitzer option of letting the uninsured die in the streets”), he clearly understands this, because he spends a couple of sentences arguing that the empirical claim is false. I’m skeptical myself that private charities would necessarily be better health care providers of last resort than the government, and clearly we couldn’t just take the government out of health care overnight without some pretty disastrous humanitarian consequences. But there is some evidence that private mutual aid societies did a decent job of providing basic necessities in the past. At the least, Weisberg and many other progressives are giving short shrift to what is actually a fascinating and difficult empirical question.

Empirical issues aside, I think that it’s usually harmful to the cause of constructive political discourse when empirical disagreements are misconcieved as disagreements over principle. Two people who disagree about whether health care would be better without government involvement at least have a chance of having a productive discussion. Dialogue isn’t really possible, on the other hand, when an entire ideology is understood to be arguing that society should let uninsured sick people rot in their gurneys.

Slate recently published a bad article by Stephen Metcalf about Robert Nozick, the libertarian philosopher who wrote that “liberty upsets patterns”, which was the inspiration for the name of this blog. Lots of people have already come to Nozick’s defense, but as a fan of Nozick, I’m going to pile on.

There are a lot of misunderstandings of Nozick in the article, but one of the biggest concerns Nozick’s famous Wilt Chamberlain example (you can see a picture of Wilt on the banner of this blog!). Metcalf starts by quoting Nozick:

“Wilt Chamberlain is greatly in demand by basketball teams, being a great gate attraction. (Also suppose contracts run only for a year, with players being free agents.) He signs the following sort of contract with a team: In each home game twenty-five cents from the price of each ticket of admission goes to him. (We ignore the question of whether he is “gouging” the owners, letting them look out for themselves.) … Let us suppose that in one season one million persons attend his home games, and Wilt Chamberlain ends up with $250,000, a much larger sum than the average income and larger even than anyone else has. Is he entitled to his income? Is this new distribution D2 unjust?”

Here’s Metcalf critique of the argument:

Anarchy not only purports to be a defense of capitalism, but a proud defense of capitalism. And yet if Anarchy would defend capitalism unashamedly, why does its most famous argument include almost none of the defining features of capitalism—i.e., no risk capital, no capital markets, no financier? Why does it feature a basketball player and not, say, a captain of industry, a CEO, a visionary entrepreneur? The example as Nozick sets it out includes a gifted athlete (Wilt Chamberlain), paying customers (those with a dollar to see Wilt play)—and yet, other than a passing reference to the team’s “owners,” no capitalist!

[…]

…Nozick is cornering us into answering a ridiculously loaded question: If every person were a capitalist, and every capitalist a human capitalist, and every human capitalist was compensated in exact proportion to the pleasure he or she provided others, would a world without progressive taxation be just? To arrive at this question, Nozick vanishes most of the known features of capitalism (capital, owners, means of production, labor, collective bargaining) while maximizing one feature of capitalism—its ability to funnel money to the uniquely talented. In the example, “liberty” is all but cognate with a system that efficiently compensates the superstar.

This is nothing more than a confused non-sequitur. The Wilt Chamberlain argument is not primarily about defending capitalism. Rather, Nozick uses it to support his conclusion that “liberty upsets patterns”. “Patterns” refers patterned theories of justice: theories of justice that hold a certain distribution D1 as just and deviations from that distribution as unjust. For example, a strict egalitarian might argue that money should be distributed exactly equally between each member of society. But if this hypothetical society starts at D1, what happens when people decide to voluntarily pay Wilt Chamberlain to play basketball? The distribution is no longer just. If the distribution is to remain just, coercive measures (taking money from Wilt and giving it back to his fans) must be undertaken continuously. One doesn’t have to have some quirky libertarian conception of liberty for this sort of continuous interference to seem unacceptable. There are serious issues with patterned theories of justice. It is this, rather than the justice of a system that awards large sums of wealth to the super talented, that the Wilt Chamberlain argument purports to establish

It’s important to emphasize that the upshot of the Wilt Chamberlain argument, if it is successful, is fairly limited. It doesn’t show that progressive taxation itself is unjust, since a political system could include progressive taxation without requiring a specific pattern of distribution. But Metcalf was so intent on setting up Nozick as the bogeyman lurking behind every right-wing argument against welfare and progressive taxation that he never took the time to actually understand what Nozick’s positions.

 

Matt Welch disapprovingly reports on Gary Johnson’s consequentialist approach to drug policy:

At the first presidential debate of the 2012 campaign, former New Mexico Gov. Gary Johnson implored Republican voters to conduct a “cost-benefit analysis” of the criminal justice system…. [C]onditions are becoming increasingly ripe for a Johnsonian cost-benefit analysis to conclude that drug prohibition needs to go the way of alcohol prohibition. It remains my hope, even my conviction, that these hardheaded arguments will reverse this evil policy during the next decade or two.

Yet we can’t assess the corrosive and life-destroying faults of the criminal justice system—and our complicity in creating them—merely by looking at the bottom line of a spreadsheet.

Americans have created a system in which criminals who have served their sentences can still expect to remain incarcerated for life. Voters continue to reward prosecutors who are notorious for locking up innocent people. Our periodic national panics about terrorism and immigration have created a system where defendants do not have access to a public lawyer, prisoners can rot indefinitely, and 30-year residents of the U.S. can get deported for Reagan-era misdemeanors.

Why did all this happen? Because we let ourselves be OK with the ends justifying the means.

Welch prefers the Ron Paul approach:

I’m grateful that Gary Johnson wasn’t the only libertarian-leaning candidate at the first GOP debate in South Carolina. Before the former New Mexico governor gave his hardheaded consequentialist answer to the drug war question, Rep. Ron Paul (R-Texas), who has always been more interested in principle than pragmatism, gave perhaps the most unusual answer in presidential campaign history. When asked about legalizing heroin, Paul analogized personal drug use to freedom of religion. When the stunned panelist asked him whether he had indeed just cited heroin use as an example of liberty, Paul said yes.

Contra Welch, I’m especially grateful to have Johnson involved in this debate. It’s widely accepted that, when deliberating about whether a policy is good or bad, consequences are important. They may not be the only important metric with which to judge policy, but they matter a great deal. This is, for most people, just common sense, and I happen to think it’s also correct.

Libertarians, however, like Welch, tend to have an aversion to consequentialist thinking. They often prefer to evaluate policy based on how well it aligns with libertarian first principles like the non-aggression principle. The problem with this is that a lot of libertarian-ish policies make sense from a consequentialist standpoint, but they fail to receive the serious consideration they deserve partially because their most vocal advocates are libertarians who make first principles-based arguments that are only convincing to other libertarians. When Ron Paul compares the freedom to use heroin with freedom of religion, his libertarian base eats it up, but most other people find it at best unconvincing and at worst ridiculous.

So it’s nice to have an advocate of libertarianism like Gary Johnson who makes arguments that appeal to values held by a wide range of people and contribute to giving libertarian policies the intellectual support they deserve

 

I’ve thought a bit more about what I wrote yesterday, and I didn’t address a common libertarian response to the sort of objection that I made. This response involves saying, “of course I’m not against [PICK ONE: protecting the planet from asteroids/ stopping the spread of aids/ giving food to the poor/ any other obviously desirable thing], I just don’t think that the government should have a role in doing it. Individuals should take responsibility for accomplishing these things through voluntary action.”

Maybe in libertopia private actors would have built a huge anti-asteroid missile defense system whose construction involved no rights violations (I’m skeptical), but in our world it is states alone that have the capacity to address this sort of problem. Given our current circumstances, the correct way of thinking isn’t to say, “if we can’t have asteroid protection without coercive state action, then I guess we’ll just have to accept that we’ll get hit by asteroids”. Instead, we should recognize that the state has a moral duty to protect us from asteroids (and prevent the spread of diseases, and feed the hungry) because moral duties in an ideal world aren’t necessarily identical to moral duties in our own very non-ideal world.

We live in a world with large, non-libertarian governments. Among the many non-libertarian things these governments commonly do are the obviously good things I listed above. It’s not clear how we get to libertopia from where we are now, and if government suddenly just didn’t do any of these things, then the consequences would be terrible. This is why the typical libertarian response doesn’t work: because even if states have power that can’t be morally justified, in our current social political context it is the state alone that has the capacity to prevent a lot of suffering.

Next Page »