The End of Libertarianism: The financial collapse proves that it makes no sense.

http://www.slate.com/id/2202489/pagenum/all

by gabrielroth • 18 years ago

49 110 18 years ago

slate.com

davidw2• 18 years ago

Bzzzzt. Off topic.

This is just as off topic as the 'Krugman Wars':

http://news.ycombinator.com/item?id=332475

MikeCapone• 18 years ago

The financial collapse proves that fiat money and government intervention in markets via the fed makes no sense (creates bubbles that then burst, like the housing bubble cause by 5 years of 1-1.75% interest rates).

To see if a free market works, we should try it someday.

Dilpil• 18 years ago

No, no, no. Libertarianism is not the philosophy that free markets will never crash. Libertarianism is the idea that government intervention is morally wrong, and many libertarians believe that it is always eventually destructive.

The article does not address the bigger question: What government intervention would have prevented this?

The article is disturbing because not only does it lack rigorous logical arguments, it openly mocks libertarians for using them. This kind of anti intellectual attitude is common among republicans, but I am surprised to see slate publish an article that espouses it.

aswanson• 18 years ago

Libertarianism is the idea that government intervention is morally wrong

In every case? Does this make logical sense? How can this be justified for all possible conditions and outcomes?

SwellJoe2• 18 years ago

Technically, "the idea that government intervention is morally wrong" when combined with "in every case" is anarchism, obviously.

Most libertarians (big and little L) believe the government does have a few legitimate roles, often including national defense (and not offense) and defense of basic human rights (via police and a court system). Libertarians are an extremely argumentative bunch, and you'll be hard pressed to find two who believe the exact same things. Keeping a libertarian "on message" would be an exercise in frustration...which I guess is one reason why none ever get elected.

I'm a card-carrying member of the LP, though ethically, the purity of anarchism is appealing to me. Regardless, I'd be perfectly content, and would feel very much less disenfranchised and poorly represented, with a government that looked a lot like the one originally envisioned by our founding fathers, which is, I guess, "Republican" in the traditional sense.

Prrometheus9• 18 years ago

>Libertarianism is the idea that government intervention is morally wrong

There is a utilitarian branch of libertarianism that argues that free markets are best for society. It does not predict that free markets eliminate economic fluctuations, only that society will be better off with free markets over the long term. This branch of libertarianism is filled with many of the libertarian economists.

Also, I don't think those libertarians would see our credit markets pre-crash as being a shining model of libertarianism.

earthboundkid• 18 years ago

Yeah, I personally think that the moral argument against government intervention is bunk. That said, I do think there's a strong consequentialist argument to be made for markets and against regulation. To me, this seems like the basic position of eg. Reason Magazine, Wil Wilkinson, etc.

walterk8• 18 years ago

Being something of a utilitarian myself, I see intervention being necessary when market incentives are not aligned with what's best for society. I've never seen anybody make a convincing case that such misalignments do not exist, or that a free market is always able to account for them more efficiently than the state.

EDIT: Feel free to make such a case or link to one. I'd like to be proven wrong.

netcan11• 18 years ago

You're both right. And this is something that is not emphasised enough. But as with most thorough ideologies, religions & such, their proponents tend to believe that they are the right course of action no matter what angle you look at them from. So from many libertarians' view, it is correct even if you are a consequentialist, utilitarian. etc.

I have yet to meet a libertarian that suggests that even though the economic policies are bad for society in a utilitarian sense, they are still morally obliged to support them.

Libertarianism is therefore associated with it's utilitarian arguments. They are in every way bar the most theoretical, the foundation of libertarianism.

walterk8• 18 years ago

> No, no, no. Libertarianism is not the philosophy that free markets will never crash.

I don't think the author ever made that claim. You'll notice he links to a range of arguments, running the spectrum from "government intervention is to blame for the crisis" to "let crises take their due course."

> Libertarianism is the idea that government intervention is morally wrong

I'm curious as to what bases libertarians (particularly those reading HN) rely upon to justify this claim. I've read Nozick, and for a year or two I was actually a staunch objectivist. (I went to an objectivist meeting once and think I scared some of the attendees by insisting upon a fixed-sum tax rather than a flat-rate.) What are the major reasons why libertarians believe government intervention is morally wrong, and what works would you cite as persuasively making the case?

mattmaroon2• 18 years ago

Leaving aside the moral issue, there's no reason to believe government intervention would have improved the situation in either the short or long term. It's easy enough to look back in hindsight and say what could have been done, but governments don't intervene in hindsght. And even if they could, it's quite possible that what we're dealing with now will make us stronger in the long term, whereas were it prevented we may have been weakened.

It's just too unknowable to say, and too easy to point back in hindsight and say "here's where government could have helped." Unfortunately, that's not very useful.

Prrometheus9• 18 years ago

If you read Nozick and were once an Objectivist, then I would guess that you've been exposed to most of the popular libertarian moral arguments.

Tichy2• 18 years ago

"Libertarianism is the idea that government intervention is morally wrong"

Since morals are just a substitute for lack of knowledge, that seems kind of silly. So libertarianism is a kind of religion?

thomasmallen2• 18 years ago

If libertarianism is a kind of religion, then The Wealth of Nations is a theological work. Give me a break.

qqq3• 18 years ago

We don't have a free market. Blaming the crash on freedom is ridiculous.

yters• 18 years ago

The article says we are in the problems we have now b/c 3 people who explicitly believe in libertarian or libertarian like ideas followed their philosophy and deregulated specific portions of the market.

The added, and somewhat implicit premise, is that these actions are logically implied by libertarianism, since libertarians are known for logical consistency and the people at fault are a good example of this libertarian virtue.

Thus, their failure of policy is an implied failure of libertarianism. This is analogous, which the article points out, with the failure of communism - the best practical example of the ideology in practice is unsuccessful thus invalidating the ideology.

So, claiming that we don't have a free market does not address the argument the article makes. Instead, it is like the communists claiming communism hasn't worked so far only b/c it hasn't been implemented purely. Even if this is true, arguments like this only mean that the proposed philosophy is practically unworkable, since it is not possible to purely implement any ideology.

TomOfTTB4• 18 years ago

Ummm...No. The article says that this is a failure of libertarianism because the 3 people you mentioned believe in libertarian ideals and their policies led to the current economic failures.

The person responded that those 3 people failed to create a free market and you then countered by saying they did the best any people could.

If those 3 people were in turn the very pinacle of competence than your counter argument would hold some weight but that's clearly not what the original comment is saying.

They're saying those 3 people failed to live up to the ideas of libertarianism and so their actions are not a good example of the libertarian ideal.

I don't even agree (at least not fully) with the person you replied to but I can see how your logic is flawed here.

qqq3• 18 years ago

Many of the problems were blatantly and directly caused by Government intervention, for example when they forced lower lending standards on banks in the name of anti-racism. And Fannie and Freddie were not private companies. One thing they did was use their connection to the Government to get better deals than any private company could get (because dealing with the Government = no risk. The tax payers won't all go broke.)

dood3• 18 years ago

A far stronger case could be made that the crash was because markets aren't free enough, since those taking risks knew governments would back them up.

It's an interesting and very complex topic, but this article is little more than nakedly partisan mud-flinging. The crash proves nothing, except that modern economics is beyond the ken of modern man.

greendestiny3• 18 years ago

I think your last sentence is most telling. Neither the free agents trading in the market nor the regulators would have continued as they did if they knew what would happen. The answer is to understand and then set up more diverse, failure tolerant economies.

netcan11• 18 years ago

I agree that this proves nothing. I agree that the US financial system or market in general was never free in a sense that would appease a libertarian but..

Your sentiments are interestingly similar to what a lot of Marxists/Communists had to say (not too many left though) when that 'failed':

That is, point to the Soviet Union & say: 'That was never true communism. So it failed. If it was truly a Marxist regime, this never would have happened.'

As I said, I wouldn't personally take this as a 'proof' of anything. But what seems inevitable is that this is causing a swing (in public opinion) away from deregulation of financial markets. I think it's very likely that there'll be a wholesale swing against the suite of things associated with 'libertarianism.' That's a shame in a way. Whether or not financial regulatory policies are optimal or not, has very little to do with the moral theories of libertarianism for example.

Anyway, there seems to be a big shift in the sway these ideas hold.

compay• 18 years ago

I wish I could vote your comment up more than once.

theschwa• 18 years ago

Is it telling that this comment has more points that the article?

ericwaller• 18 years ago

The financial collapse doesn't prove anything.

Capitalism, socialism, despotism, anarchism, whatever. At the center of any society there will always be people making mistakes.

pg• 18 years ago

Or proves, like many a previous crash, that there are still bugs in the de facto software that is the financial system. Patch, continue, hit the next-- but grow overall.

At least we know now not to debase the currency; it took the Romans a couple hundred years to learn that didn't work.

rsheridan62• 18 years ago

>At least we know now not to debase the currency; it took the Romans a couple hundred years to learn that didn't work.

I wouldn't be so sure of that. I think debasing the currency DID work in the short run to solve whatever crisis the emperor had to deal (no funds to pay the troops, etc), despite the negative long-term effects. Modern politicians could get similar short-term benefits - voters would probably prefer debasement to tax increases because the problems caused by debasement aren't as obviously linked to it as larger withholdings on a paycheck are to taxes.

It may become tempting for American politicians to debase the currency to reduce the massive debt we've accrued.

eru3• 18 years ago

Isn't the Dollar already getting debased? (At least compared to other currencies. The FED's interest rates have been low for quite some time.)

darjen• 18 years ago

Utterly ridiculous. The author doesn't know the first thing about libertarianism.

elidourado2• 18 years ago

I am a libertarian (well, a philosophical anarchist, actually) and I favor some sort of government intervention to attempt to avert a financial disaster. Indeed, I would have favored more regulations to rein in the GSEs before the collapse. There is no contradiction here.

Given that you have moral hazard problems created by government, it is not somehow unlibertarian to advocate regulation to reduce excessive risk-taking by government-backed agencies. Ideally, Fannie and Freddie would never have existed. Since they did exist, the second-best case would have been for them to be purely private entities with no implicit government guarantee. The third-best case would have been for them to be purely public entities with no profit motive. The fourth-best case would have been for them to be mixed private-public entities like they were, but subject to stringent oversight. We were in the fifth-best case in which they had a profit motive, moral hazard, and little oversight.

For similar reasons, I favor a bailout. There is a time-consistency problem. The government would like to commit to never bailing anyone out. If it were able to do this, the need for bailouts might not arise. But it cannot commit; since everyone knows the government will bail big financial firms out, it basically has no choice.

None of this in any way contradicts my view that the government should not intervene in housing markets in the first place, that currency competition should exist, that taxes should be much lower, that there should be no government redistribution of incomes, that public schools should be shut down, that there should be no government provision of health care, that the draft should be abolished, that marriage should be unregulated, that prostitution should be legal, or that 12 year olds should legally be allowed to purchase heroin from vending machines.

netcan11• 18 years ago

I think you may be hanging to tightly to the semantics.

Libertarianism is not being used (in this article or in general discussion) in its moral theory/political theory sense. They are referring to the derived economic policy theories.

Hype removed, it might read: 'End of government intervention as a taboo.'

elidourado2• 18 years ago

No, I don't think so. I am an economist; I understand the issue. I'm saying that if you start with a government intervention, there's not anything unlibertarian about advocating a further intervention to make things less bad, provided that you oppose the initial intervention.

For instance, libertarians oppose government-created monopolies. But given a government-created monopoly, it's not unlibertarian to support regulating it. The optimal libertarian policy is obviously abolishing said monopoly. The second-best one is regulating it. The third-best is letting it abuse its power.

TomOfTTB4• 18 years ago

Well, here’s the problem with this. Banks started making bad loans BECAUSE of Government. Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement.

The Clinton Administration passed a law which provided funding to banks that gave loans to "risky" buyers with bad credit. Since then there’s been an endless stream of laws doing the exact same thing. Politicians like saying "housing is at a record high" so they’ve been trying to game the financial markets to encourage loans to anyone and everyone.

That’s what primarily caused this crisis.

Don’t get me wrong, there were other causes as well. The 1996 bill did not, in and of itself, cause this problem. But in general this was caused by a society that thinks it can do anything it wants because Government will "manage" the economy and always bail it out.

If you agree with this article ask yourself this: Once the economy recovers a little, why wouldn’t banks go back to the exact same lending practices that got us into this mess in the first place? If they know the Government will bail them out there’s no reason not to?

Oh, and while you are asking yourself that, also ask yourself why Europe got in the same trouble even though they have an example of the highly managed economy that people like the article’s author are endorsing.

davidw2• 18 years ago

> Banks do not, en masse, make loans to people who aren't likely to pay the money back without Government encouragement.

But when they securitize the loan, and sell it on, they have every incentive to 'make bad loans', because they get a cut of the sale, and little of the actual risk.

This crisis does not have one and only one cause - it's a mix of nasties that came together. Anyone who is trying to sell you one policy that would have fixed it "it's all the government's fault!", or "if only we had had more regulation!" (without saying what regulation) is very likely wrong.

Tyler Cowen, as he often does, has something sensible to say:

http://www.nytimes.com/2008/10/19/business/19view.html?partn...

mynameishere• 18 years ago

Rather full-bore idiocy, there.

I mean--libertarianism? Really? That's who you're blaming?

Well, let's assemble all of congress, and ask them, "Will all libertarians raise their hands?" You'll have one hand raised.

Assemble every high level official in the Bush administration--ask them the same thing. [crickets chirp]

Do the same thing throughout all the bureaucracies...well, here you might get a few, since low-level people see how things are, and don't worry too much about political presentation. But still...2 or 3 percent at most.

And Greenspan? The very definition of a market-manipulator is a...libertarian? Ah, and Hitler provided free housing for the Jews! That's right!

This is like blaming the Atheists for 9/11 because there was a single atheist among the victims. I'm glad to see a copy of that rubbish was in Newsweek. That's great.

s_baar2• 18 years ago

This is near facetious. These aren't "theories" that sprang up overnight like the bailout did. Austrian economists have specifically identified Freddie/Fannie etc. as the agents of credit expansion to the housing sector, BEFORE there were problems.

A total non-sequitir, he dismisses them without even bothering to offer an alternative theory.

Also, it's misleading to reference CATO. No libertarian outside of CATO respects them. Randians are fair game (it IS fun to poke at them), although their mention in this article was more to sensationalize than to add anything relevant to the topic at hand.

Oh well. It seems that those animal spirits area acting up again. It sure is convenient that all government action is supremely rational.

zzzmarcus• 18 years ago

You're the first person I've heard to say that most libertarians don't respect CATO. Who do they respect then? I'm not trying to be confrontational, just asking...

s_baar2• 18 years ago

Ron Paul, Austrian economists, lew rockwell. It may have been rash to say that people don't respect CATO. However, recently, previous disagreements are now seriously hurting opinions because of the bailout. The main beef with CATO is their connection to neocons and objectivism. Their support for the bailout as a temporary solution matter hasn't helped.

wustl07• 18 years ago

God I love amateur hour. The economic crisis stems directly from the impossibility of correctly modeling rare events in a complex system such as the financial market. You throw the gross lack of accountability fueled by many factors, including a few government backed loans used for leveraging, and no one has to ever solve the real problem. A new approach is needed for the financial markets, and it should have absolutely nothing to do with increased regulation.

mattmaroon2• 18 years ago

Wow. He argues that a financial collapse caused by two quasi-governmental businesses giving out loans too liberally due to a decade of government pressure is the end of Libertarianism. If anything, it feels more like the beginning.

gabrielroth• 18 years ago

"Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent.... One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards."

http://www.mcclatchydc.com/251/story/53802.html

sh3l1• 18 years ago

Besides, financial freedom is only half of libertarianism.

defen• 18 years ago

Serious libertarians disdain fractional reserve banking as the source of bank runs. The current financial troubles hardly discredit libertarianism.

snewe• 18 years ago

I love this mentality: if only smart bureaucrats were running the mortgage market, none of this would have happened!

maw• 18 years ago

The whole article seems to be building towards that—along with the notion of smart lawmakers writing the necessary laws to make it happen just right—but ends rather abruptly.

Talk about painting yourself into a corner.

joseakle• 18 years ago

i'd say it was a hell of a hack, just don't forget no to be evil

baddox2• 18 years ago

Pointing to Sarah Palin as an example of a libertarian is, much like the rest of this article, ludicrous.

baddox2• 18 years ago

The author consistently accuses libertarians of relying on "abstract theory," yet this article itself is a rather abstract attempt to debunk libertarianism. To even contend that libertarian economic principles have been applied prominently in the US or global economy is ridiculous, to further claim that these libertarian principles have caused the current circumstances is beyond ridiculous. The entire line of argument in this article is off base; the same line could be used to blame Hitler's atrocities on democracy or the Roman army's defeat at the Battle of the Allia on their use of the phalanx.

crux_• 18 years ago

Sunday is a good day for debating on the internet... So, here's what is probably an unpopular thesis, but one I believe is true: Libertarianism is a convenient fantasy but nothing more.

Libertarians somehow believe that "free markets" and "regulation" are antonyms, as if the market is something other than a regulatory creation. Think: Would a free market exist without the force of government backing contractual obligations? (I'll exempt the anarchist libertarians here, who lack this willful ignorance, although their vision is hopelessly rose-tinted.) What about regulations on activities like insider trading, or lying on balance sheets?

The fact is that, just like in so many other things, individual self-interest is often at odds with the continued existence of any shared enterprise, including the free market itself. Without regulation to create and sustain it, the market wouldn't even exist.

So the question is really that of "which regulations" rather than "no regulation"; libertarians conveniently pretend otherwise, forcefully claim an absolutist moral high ground, and in doing so badly distort policy debates and decisions.

(Even if we buy what anarchist-libertarians are selling, their vision is essentially yet another utopia and like all utopias, there is no clear path 'there' from 'here'.)

thomasmallen2• 18 years ago

Maybe Slate should spend its dollars on decent writers instead of the design overhaul. It's unbelievable how far their journalistic quality has fallen over the past couple of years.

gills• 18 years ago

What an asshat. These problems aren't a failure of any system or ideology, they are a failure of law enforcement.

stevedekorte• 18 years ago

Libertarians have been warning others about the collapse of the debt bubble since the early 1970's and have been alone in calling for the end of the central banking system which creates debt bubbles. It is the height of ignorance to claim that the current collapse is a case against Libertarian economics.

asciilifeform• 18 years ago

Libertarianism cannot be killed any more than Catholicism could. The market crash is a "test of faith." Every failure can be attributed to an insufficiently libertarian government.

The End of Libertarianism: The financial collapse proves that it makes no sense.

Related Stories