When an individual/firm’s actions affect people other than those immediately involved in a transaction, economists call this an “externality.” To correct a negative externality, in theory, a government is to impose a tax in order to shift the supply curve as shown (vaguely) below:

This way, the actual social cost of the action will be taken account of. When there is a positive externality, there will be underproduction of the good/service and governments should subsidize the good.

Well take the case of the negative externality of a driver going faster than the speed limit. In this situation, the driver is endangering others on the road that have no control over how fast the driver goes. To correct this externality, we impose fines – speeding tickets. This is meant to at least bring the level of speeders closer to the “socially optimum,” since drivers will now face a higher cost – the possibility of a speeding ticket – and be less likely to speed. The ticket is meant to deter the speeder.

Would a $50 dollar ticket deter a billionaire? Similarly, would a $50 fine for anything really deter a billionaire? As such, is it more appropriate to base fines like these off of personal income of the individual? Otherwise, the intention of deterring negative behavior will be very weak (or overly strong for poor people). This could lead to dangerous policies and I’m not sure the government as the competence to correctly enact such a system. But I still think it’s an interesting idea.

(Continued from here and here.)

Aside from situations involving historical injustice, another way that applied libertopianism can run into problems in the real world is when costs are  socialized.  Consider financial regulation.  In libertopia, there is no financial regulation other than the general laws against force and fraud that cover all private transactions.  Applied to current policy issues, the libertopia approach would seem to recommend as much deregulation as possible.

In practice, however, we must confront the existence of “too big to fail”.  As we saw in the 2008 financial crisis,  the government is not  going to let large financial institutions go under even if they deserve to based on their reckless business practices.  The short term costs of a complete collapse of the global financial system are just too great.

But it is well known that the guarantee of a taxpayer bailout creates moral hazard problems.  A financial firm that knows it will be saved if it over-leverages itself will make riskier investments than it optimally would.  Libertopian thinking has nothing particularly helpful to say about this dilemma.  It seems that even a libertarian who has a prima facie objection to any  coercive government intervention, whatever its form, would have to acknowledge the need for some sort of financial regulation in this situation.

But on what grounds is state intervention justified in this instance?  Often, policies of this sort are justified using economic cost-benefit analysis.  CBA is certainly an important metric for evaluating policy alternatives.  But is also unlikely to be completely satisfying to a libertarian; a common thread that runs through most libertarian political thought is that individuals are separate in a way that makes it impossible to properly evaluate a policy’s legitimacy simply by aggregating costs and benefits over a individuals in a large group.

Anyone have any ideas for a more distinctively libertarian approach?

(Continued from here).

What are the instances in which applied libertopian approaches to public policy can have effects that are on net harmful to freedom?

In my previous post on this subject, I mentioned  libertarian opposition to the section of the civil rights act that prohibits private businesses from racially discriminating between their patrons.  Briefly, the problem with this position is that in the centuries preceding the passage of the Civil Rights Act, slavery, state-sponsored segregation, toleration of violence against black people, and other unjust policies pervaded throughout the South.  The discrimination that blacks faced in the years before the passage of the Civil Rights Act was not the result of a bunch of individual, private decisions.  Rather, it was the result of systematic racial oppression.  Simply ending the state’s active participation in a racist society would not have fully addressed the problem.  Thus, it is legitimate, from a libertarian standpoint, for the state to play an active role in fighting discrimination.

To generalize, in circumstances involving significant historical injustice, a policy that reduces state coercion may not be a good policy for promoting freedom.

I’m not going to get into it now, but I think that there may be a libertarian case for affirmative action (a policy that libertarians almost universally oppose) as way to remedy past injustices.

(This is based on a couple of conversations I had with Julian Sanchez, and they’re more his thoughts than mine.  I’m just trying to clarify my own thinking by writing about it).

Many libertarians base their political philosophy on the principle of self-ownership.  The principle of self ownership, according to most libertarians, leads to a Nozickian minimal state in which the government’s role is constrained to the protection of rights to liberty and property, the enforcement of contracts, and judicial dispute resolution.

The ultimate goal for these libertarians is to transform our society into a Nozickian “libertopia”.  This sort of view is easily applied to particular public policy questions.  Would policy x move us closer to libertopia?  Would the overall effect of policy x be to reduce or increase state coercion?  The answer to these questions, rather than the complex economic analysis often involved in weighing public policy options, determines which policy libertarianism recommends.

But libertarians don’t (or shouldn’t) just care about the abstract goal of inching toward libertopia.  They also (should) care about what overall effect a policy has on real world human freedom.  The problem is that focusing exclusively on reaching libertopia can sometimes lead one to support policies that are actually harmful to the cause of promoting freedom.  A good example of this is libertarian opposition to the section of the civil rights act that prohibits some privately owned businesses (such as restaurants) from racially segregating their patrons (see Julian Sanchez’s Newsweek piece on this in the wake of the Rand Paul controversy).

A challenge for libertarians is to come up with some basis for favoring one policy over another when applying libertopia doesn’t work (also, for what kinds of public policy issues is libertopian analysis not a good option?).  More on this soon.

Part I here.

Consider the following hypothetical that takes place under a libertarian (Nozickian/Randian/Rothbardian) state.  A rich person has a pile of money in her house.  A poor person, wanting some money, goes into the house and starts taking it.  When the rich person tells the poor person to stop, the poor person refuses.  The rich person may now call in the force of the state to stop the poor person from taking the money.  The state may, using physical force if necessary, imprison the poor person and take back whatever money the poor person took from the rich person.

Non-aggresion principle endorsing libertarians would say that the state’s forcible protection of the rich person’s money is legitimate.  But for something that is allowed under the non-aggression principle, it sure seems pretty aggressive to me!  What’s going on here?

The two cases (the one from part I and the one above) aren’t the same, the defensive libertarian might claim.  In the first case, the state is coercively seizing property that belongs to the rich person, whereas in the second case, the state is simply protecting the rich person’s property from a would-be thief.

However, this response doesn’t hold up, because it presupposes the institution of property rights, which are a social institution with certain rules about what it means to own something.  Among them are rules about when it is permissible to use physical force against another person.  It’s an assumption about the existence of property rights, not the non-aggression principle, that’s doing the work here.

State-backed redistribution and state-backed property rights are both, in a sense, coercive.  The question obviously becomes, which sort of coercion is justified?  The non-aggression principle, as I have shown, is unable to provide the answer, and it therefore does not necessarily entail libertarianism.

A lot of libertarians endorse the non-aggression principle, which states that the initiation of physical aggression is illegitimate.  Seems like a good principle if you value freedom: we should all be free to do what we want as long as we don’t violate other people’s freedom to do what they want.  This kind of thinking leads to Nozick’s popular (among libertarians) view that “taxation is theft”.

I bring this up because I have been thinking lately about a conversation I had about a year ago with Isaac Morehouse of the Institute for Humane Studies during an IHS seminar.  We were debating the legitimacy of the welfare state (I was arguing that the welfare state is legitimate).  Isaac made an argument that, to the best of my recollection, went like this: if you endorse the legitimacy of the welfare state, then this entails that you think that it’s morally legitimate for an agent of the government to go up to a rich person whose personal stash of wealth is subject to redistribution and demand that he pay his (disproportionately large as a percentage of his income) share of taxes.  If he refuses, then the government agent may call in the coercive mechanisms of the state to physically force him to pay, even if that means imprisoning him and then breaking into his home and taking the money he owes out of the treasure box under his bed (or his bank account, or whatever).

How could any self-respecting liberty lover support such a practice?  At the time of our conversation, I didn’t have a response to this non-aggression argument, but now I think that I do.  In my next post, I’ll explain why I think the argument fails and why libertarians should abandon the “taxation is theft” objection to redistributive policies.

I’m interning this summer for Brink Lindsey and Will Wilkinson, who are two of my favorite political thinkers.  They both do work on “liberaltarianism”, which is something that I’m especially interested in myself.  People often ask me what liberaltarianism is.  I’m not sure that there’s one simple answer, but I’ll try to give a sketch of my conception of it.  In the realm of political theory, I take it to be some combination of classical and modern welfare liberalism (Rawls is taken seriously, Lockean/Nozickian frameworks of absolute negative rights, which provide the philosophical grounding for traditional libertarian political theories, are de-emphasized).

In terms of everyday politics, liberaltarianism holds that libertarians potentially have more common ground with liberals (and vice versa) than with conservatives (thus moving away from traditional, Goldwater/Reagan era libertarian/conservative fusionism).  In the wake of the Bush administration, the Republican party has totally blown its small government credentials and become a cesspool of backward, anti-intellectual nuttiness.  While nobody can say with a straight face that the current liberal establishment in any way embodies the ideas of limited government, there are at least some shared foundational commitments.

I find liberaltarianism attractive for a couple of reasons.  For one, possibly due to my philosophy training at a very un-libertarian Swarthmore department, I’ve become skeptical of rights-based theories.  Therefore, I find unconvincing the traditional libertarian claim that taxation/redistribution is immoral just because it involves state coercion of non-consenting citizens.  Also, more practically, it seems to me that libertarian/conservative small government fusionism only really makes sense if one places an inordinate amount of importance on tax policy.  Not that tax policy is unimportant, but on a host of other issues that libertarians should care about, liberals tend towards much more libertarian-friendly positions that conservatives: defense policy, abortion, privacy/surveillance issues, gay marriage, and immigration.

I’m a little late on the Rand Paul controversy, but since I’ve finished up the last of my work for college and finally have a bit of free time, I’ll give my brief take on the matter.

Rand Paul, the Tea Party-affiliated Republican nominee for one of Kentucky’s US Senate seats, has come under fire for declaring his opposition to the part of the 1964 Civil Rights Act that prohibits  business owners from turning away customers based on race:

I don’t like the idea of telling private business owners [what to do].  I abhor racism… but at the same time I do believe in private ownership.

After an ugly session with Rachel Maddow, Paul’s alleged racism became a national story.  This is clearly a political disaster for Paul; you know a politician is in trouble when he has to issue a statement saying that he won’t try to overturn the Civil Rights Act.

Some libertarians came to Paul’s defense.  In response to Paul’s assurance that he would not try to repeal the Civil Rights Act, John Stossel wrote, “None of it?  How about the part that denies private citizens the right of free association? I hope Paul stands up to the pressure.  If not, freedom of association is in trouble.”

This position is seriously misguided.  Of course, all else equal, private businesses should be able to discriminate between potential customers.  But in 1964, all else was definitely not equal.  The south had, for hundreds of years, state-sponsored, institutionalized racism.  There’s a difference between uncoordinated, free individuals choosing whom to associate with and an entire culture and social system based on racial oppression.

The principle of free association is a good one, but that doesn’t mean that it should never be violated, if its violation is necessary to combat some greater evil.

One thing I like about the classical liberalism is that it generally has a much more optimistic worldview than other ideologies.  Clearly, optimism is only good if it is justified, but I think that, for the most part, the optimism of classical liberalism is justified.  Without a doubt, as we conclude the first decade of the 2000’s, humanity faces plenty of challenges.  But if you look at macro trends, the world today is more peaceful and prosperous and its inhabitants have a better chance of living satisfying, interesting, and fulfilling lives than ever before.  Contrast this with pessimists on the right, who worry about a society that is rapidly becoming less religious, more tolerant, and more culturally liberal, and pessimists on the left who fret about rising levels of income inequality, potential environmental catastrophe (which I think is a warrented, although often exaggerated, concern), and globalization.

Because of the current economic downturn, this is an especially difficult time to convince people that humanity is on the right track.  I certainly do not want to diminish the very real and tragic effects of unemployment and economic insecurity resulting from the global recession.

However, looking at the state of the world from a global perspective, things are actually pretty good, as Matt Yglesias pointed out last week: “if you’re one of the 2.5 billion people who live in China or India, this is pretty much the best of times. This also seems to be the best of times for Indonesia, and Brazil the world’s fourth and fifth largest countries. That’s 43 percent of the world’s people living in four countries who’ve had a very good decade.”

So again, it’s truly tragic that many people in the developed world are losing their jobs and homes and struggling to to maintain the quality of life to which they have become accustomed.  But citizens of developing countries are pulling themselves out of poverty at an unprecedented rate, and I think that that justifies continued optimism about the progress that we will see as we head into the next decade.

F.A. Hayek, along with other thinkers and building on the works of other philosophers, put forth the idea of spontaneous order.

Spontaneous order, in a short description: order coming out of seeming chaos that is the result of action and not planning. One example I was once told of is that of a campus. Whereas the location of the buildings and pathways is the result of human planning, those pseudo-paths that form on the grass from people individually walking the path of least distance is the result of human action. Another example is language. Spanglish never had a chance because, as much as a bunch of people wanted to design a language, language is the spontaneous generation of people acting over time. A more familiar, closer example is that of Adam Smith’s Invisible Hand.

An example of a path spawned from human action and not human design.

Spontaneous order is used by some to argue that freer markets are a better way of allocating resources than any central planner could ever dream of. When governments try to disrupt the spontaneous order of society, they risk making things worse. Pouring salt on the wounds, governments try meticulously to solve the problems of disrupting spontaneous order by, you guessed it, disrupting the spontaneous order even more.

I came across a great example the other day of an entity trying to realign spontaneous order after disrupting it. It was in the movie Back to the Future. In it, Marty McFly goes back in time and accidentally makes his mother fall in love with him. This screws up the properties of time and Marty slowly becomes “unborn”. He needs to undo this and get his parents back together. Think of the “Butterfly Effect” here.

Like governments, Marty got in the way of how things were “supposed to happen”. Although most people don’t agree with how things are “supposed” to happen, Hayek would say that the best spontaneous order is the one that happens based on voluntary exchange of individuals in a system with legal equality. Unlike governments, Marty was able to correct the spontaneous order (only to be followed by a myriad of challenges, laughs, and excellent actions scenes in the second and third parts of the trilogy).

Governments, it seems, tend to do the opposite. Austrian economists would argue that all of the world’s ills (ok, maybe not all of them) come from the government disrupting spontaneous order through manipulation of the money supply. But I’ll give a more relevant example: minimum wage. Assume, for just a second, that my thoughts on minimum wage are correct: it creates a surplus of workers instead of its intended consequence of just raising the wage of workers. To combat this unemployment, the government raises welfare benefits which, as any cross-country comparison shows, creates a higher level of the natural rate of unemployment.

Maybe there were too many assumptions necessary for that example to be convincing. But I think you can probably think of an instance where government’s “cure” is worse than the disease – the disease it happened to have created. Plus, I figured it was about time for a more lighthearted post.

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