![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Libertarians Are Wrong
Mar. 5th, 2009 09:09 amI have been, of late, frequently getting into discussions online with libertarians, both card-carrying and sympathizers. Although the idea that market forces can be used to steer behavior is valid, the general ideas of libertarianism are simply wrong. I may be accused of setting up a strawman here, but let me define what I think are the ideas of libertarianism and then I shall explain their failings.
Libertarians believe that competition in the free market will always produce the most beneficial outcomes to society, and that, allowed to do for themselves, individuals will be able to maximize their prosperity. They believe in deregulation and a very minimalist government, and think that, absent such government, individuals will organize themselves to accomplish whatever needs to be done, making rational, long-term decisions.
Now, I am all in favor of letting people make their own decisions. I have faith that Humanity will make the right ones – individual Humans, not so much. I also think that one of the functions of government is to protect humans from each other.
But at the end of the day, libertarianism is a naïve philosophy, lacking an understanding of how people behave. Specifically:
People don’t always make informed decisions.
Do you have the background in chemistry to evaluate which brand of toothpaste is good? Especially if you can’t rely on the label for an accurate list of ingredients. So, most folks have to rely on certifications or other impartial judgments.
But it matters a lot who pays for that certification. For example, in the bond market, the issuer of the bond pays for the rating. So, AIG had strong incentives to give high bond ratings. Even if they wanted to be honest, the need of an issuer to get a favorable rating would mean that the issuer would go to somebody they could count on for a good rating. We’ve seen how well that system works.
People don’t always think long term.
AIG is another good example. In the long term, a bond-rating firm that screws up its ratings won’t stay in business. But obviously the management of AIG wasn’t concerned about that. Sometimes this is caused by alligator syndrome (if you’re up to your ass in alligators, it’s hard to remember your original purpose was to drain the swamp). Other times, this failure is deliberate, and you see people in the know stashing cash so that when the music stops, they have a place to sit.
Competition is hard. Collusion and Cheating is Easy.
During the Golden Age of Libertarianism, AKA the “Gilded Age” of the second half of the 19th century, companies in many industries didn’t compete. They colluded, drove their competitors out of business, or formed monopolies which they used to drive prices up. It’s simply easier to do this than outhustle the other guy, and once a firm / cartel is big enough, they can make it nearly impossible to break in.
It doesn’t take many bad apples to ruin the barrel.
Most people are trying to be fair and honest. A few aren’t. It doesn’t take many crooks to make it impossible to function. After all, one man, Bernie Madoff, robbed $50 billion.
Using the market to shape behavior can be valid. But we need government. Government exists to protect us from ourselves.
Libertarians believe that competition in the free market will always produce the most beneficial outcomes to society, and that, allowed to do for themselves, individuals will be able to maximize their prosperity. They believe in deregulation and a very minimalist government, and think that, absent such government, individuals will organize themselves to accomplish whatever needs to be done, making rational, long-term decisions.
Now, I am all in favor of letting people make their own decisions. I have faith that Humanity will make the right ones – individual Humans, not so much. I also think that one of the functions of government is to protect humans from each other.
But at the end of the day, libertarianism is a naïve philosophy, lacking an understanding of how people behave. Specifically:
People don’t always make informed decisions.
Do you have the background in chemistry to evaluate which brand of toothpaste is good? Especially if you can’t rely on the label for an accurate list of ingredients. So, most folks have to rely on certifications or other impartial judgments.
But it matters a lot who pays for that certification. For example, in the bond market, the issuer of the bond pays for the rating. So, AIG had strong incentives to give high bond ratings. Even if they wanted to be honest, the need of an issuer to get a favorable rating would mean that the issuer would go to somebody they could count on for a good rating. We’ve seen how well that system works.
People don’t always think long term.
AIG is another good example. In the long term, a bond-rating firm that screws up its ratings won’t stay in business. But obviously the management of AIG wasn’t concerned about that. Sometimes this is caused by alligator syndrome (if you’re up to your ass in alligators, it’s hard to remember your original purpose was to drain the swamp). Other times, this failure is deliberate, and you see people in the know stashing cash so that when the music stops, they have a place to sit.
Competition is hard. Collusion and Cheating is Easy.
During the Golden Age of Libertarianism, AKA the “Gilded Age” of the second half of the 19th century, companies in many industries didn’t compete. They colluded, drove their competitors out of business, or formed monopolies which they used to drive prices up. It’s simply easier to do this than outhustle the other guy, and once a firm / cartel is big enough, they can make it nearly impossible to break in.
It doesn’t take many bad apples to ruin the barrel.
Most people are trying to be fair and honest. A few aren’t. It doesn’t take many crooks to make it impossible to function. After all, one man, Bernie Madoff, robbed $50 billion.
Using the market to shape behavior can be valid. But we need government. Government exists to protect us from ourselves.
