‘The Question Libertarians Can’t Answer,’ Part II

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Last week, Michael Lind posed what he thought was a devastating question for libertarians: if your system is so good, why aren’t there any libertarian countries?

This was more a funny question than a difficult one, since while Lind really seems to have thought he’d gotten us good, the question is one libertarians themselves address constantly. By rephrasing his question, I teased out the answer:

(1) “If your approach is so great, why doesn’t local law enforcement want to give up the money, supplies, and authority that come from the drug war?”

(2) “If your approach is so great, why don’t big financial firms prefer to stand or fall on their merits, and prefer bailouts instead?”

(3) “If your approach is so great, why do people prefer to earn a living by means of special privilege instead of by honest production?”

(4) “If your approach is so great, why does the military-industrial complex prefer its revolving-door arrangement and its present strategy of fleecing the taxpayers via its dual strategy of front-loading and political engineering?”

(5) “If your approach is so great, why do businessmen often prefer subsidies and special privileges?”

(6) “If your approach is so great, why do some people prefer to achieve their ends through war instead?”

(7) “If your approach is so great, why does the political class prefer to live off the labor of others, and exercise vast power over everyone else?”

(8) “Special interests win special benefits for themselves because those benefits are concentrated and significant. The costs, dispersed among the general public, are so insignificant to any particular person, that the general public has no vested interest in organizing against it. An extra 25 cents per gallon of orange juice is hardly worth devoting one’s life to opposing, but an extra $100 million per year in profits for the companies involved sure is worth the time to lobby for.

“If your approach is so great, why does this happen?”

(9) “If your approach is so great, why don’t people want to try it out, after having been propagandized against it nonstop for 17 years?” (K-12, then four years of college.)

Now we have E.J. Dionne, who’s come along to remind everyone why we need our overlords. He thinks Lind’s question is a super one, too. I will have plenty to say if I confine myself to this one Dionne paragraph:

We had something close to a small-government libertarian utopia in the late 19th century, and we decided it didn’t work. We realized that many would never be able to save enough for retirement and, later, that most of them would be unable to afford health insurance in old age. Smaller government meant that too many people were poor and that monopolies were formed too easily. And when the Depression engulfed us, government was helpless, largely handcuffed by this antigovernment ideology until Franklin Roosevelt came along.

Every aspect of this statement is false.

In the nineteenth century there was no such thing as “retirement,” so no one would have said, “Under this system, people won’t be able to save enough for retirement!” Only continued capital accumulation, which occurs when businesses may reinvest their profits in the purchase of capital goods without being expropriated by government, made it possible for the economy to become physically productive enough for something like “retirement” even to become conceivable. Even when Social Security was established, the retirement age was higher than the average life expectancy, meaning most people would be dead before they could get any of their money back.

As for health insurance in old age, this too is belied by the facts. “Most of the government’s medical payments on behalf of the poor compensated doctors and hospitals for services once rendered free of charge or at reduced prices,” writes historian Allen Matusow. “Medicare-Medicaid, then, primarily transferred income from middle-class taxpayers to middle-class health-care professionals.”

And what made health care so costly in the first place? Not the “free market,” which Dionne himself would admit hasn’t been anywhere near health care in anyone’s lifetime. Vijay Boyapati provides a big chunk of the answer.

Dionne then says, “Smaller government meant too many people were poor.” This is flat-out idiocy. The greatest gains against poverty in the United States occurred when government was least involved. In 1900, the poverty rate by today’s standards was 95 percent. By the time the federal government got involved in poverty relief in a non-trivial way, in the late 1960s, that figure had already plummeted to between 12 and 14 percent, where it has remained to this day. There’s a good discussion of all this in Back on the Road to Serfdom, a collection of essays I edited for the Intercollegiate Studies Institute.

Since government got involved, the poverty rate has stagnated. Trillions of dollars have been spent, yet the figures won’t budge.

So the truth is exactly the opposite of what Dionne claims. Government has done a rotten job of alleviating poverty. The natural operation of the market is what has come as close as any institution can to conquering it.

In the same sentence, Dionne says: “Smaller government meant that…monopolies were formed too easily.” Dionne is here relying more on his recollections from eighth grade than he is on specialized studies and actual data.

Mainstream economics identifies monopolists by their behavior: they earn premium profits by restricting output and raising prices. Was that behavior evident in the industries where monopoly was most frequently alleged to have existed? Economist Thomas DiLorenzo, in an important article in the International Review of Law and Economics, actually bothered to look.

Here’s what he found. During the 1880s, when real GDP rose 24 percent, output in the industries alleged to have been monopolized for which data were available rose 175 percent in real terms. Prices in those industries, meanwhile, were generally falling, and much faster than the 7 percent decline for the economy as a whole. Steel rails fell from $68 to $32 per ton during the 1880s; we might also note the price of zinc, which fell from $5.51 to $4.40 per pound (a 20 percent decline) and refined sugar, which fell from 9¢ to 7¢ per pound (22 percent). In fact, this pattern held true for all 17 supposedly monopolized industries, with the trivial exceptions of castor oil and matches.

In other words, the story we thought we knew from our history class was a fake. (For more on the alleged monopoly problem on the free market, see my article “The Misplaced Fear of ‘Monopoly.'”)

Finally, we read this: “And when the Depression engulfed us, government was helpless, largely handcuffed by this antigovernment ideology until Franklin Roosevelt came along.”

So Dionne repeats the “Hoover believed in laissez faire” myth that historians rejected decades ago. In case E.J. doesn’t believe me, here’s a scholar being interviewed at pbs.org: “Historians now acknowledge [Hoover’s] progressive inclinations, and his commitment to counter-cyclical planning and the belief that the nation ought to have a reservoir of big projects in the planning stages that could be executed when the time was right. Programs begun during the Hoover years, such as the Reconstruction Finance Corporation, were forerunners of the New Deal, and years later New Dealer Rexford Tugwell acknowledged that — even though no one would say so at the time — ‘practically the whole New Deal was extrapolated from programs that Hoover started.'”

Hoover expressly said that laissez-faire was a thing of the past. He had said so all through the 1920s. He launched public works projects, raised taxes, extended emergency loans to failing firms, hobbled international trade, and lent money to the states for relief programs. He sought to prop up wages as prices were falling. His deficits, as a percentage of GDP, rivaled FDR’s.

Dionne evidently thinks there are lots of things government can do to fix depressions if they’re not “handcuffed” by ideology. This is incorrect, for reasons I can’t get into here (but which I discuss in this video). But the U.S. government was not handcuffed, under either Hoover or FDR, and yet the Great Depression persisted longer than any economic downturn in U.S. history. (On the nineteenth-century panics and whether they were caused by laissez-faire, see our resource page Economic Cycles Before the Fed.)

Naturally, Dionne speaks of the Depression as if it just “came along,” without a cause. But it did have a cause: the interventions of the Federal Reserve into the economy throughout the 1920s. New York Fed President Benjamin Strong even spoke of giving a “coup de whiskey” to the stock market. Murray Rothbard tells the story in America’s Great Depression.

For more information here, I cover the causes of the Depression, the Hoover response, and the FDR response in 33 Questions About American History You’re Not Supposed to Ask.

As for the welfare states Dionne seems to like, their effect is everywhere the same: the number of births shrinks (because of the incentives of the programs themselves), and the shrinking youth population eventually becomes unable to support the overwhelming burden of old-age transfer programs. It is beginning to happen all over the world. In the U.S., the present value of the unfunded liabilities of the major transfer programs is $222 trillion. (On the Swedish welfare state in particular, see “The Swedish Model Reassessed: Affluence Despite the Welfare State.”)

In short, Dionne himself, who has a huge audience from his perch at the Washington Post, repeated half a dozen preposterous pro-government myths in just one article. Then he presents the question of why people aren’t more sympathetic to libertarianism as if it were some kind of puzzle. If it’s a puzzle, then E.J. Dionne and his friends are a big piece.

(Thanks to Danny Sanchez for the link.)

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