A Critique Of Libertarianism/Small Government Advocates: Is Such A System Possible?

"The Trouble With Liberty" is a good article that presents an opposing view on small-government libertarianism. The article has a lot of good points and questions that need to be answered by anyone who advocates less government and it also points out the impracticality of having a very limited government. In some cases the author is incorrect and in other places he correctly points out the problems that we face, but he fails to see the cause/causes of these problem and instead advocates a solution that is what caused the problem to begin with.

Do Western nations still have to fear socialism?

Ever since its publication in 1944, Hayek’s The Road to Serfdom has been the anti-regulatory Ur-text. Hayek wrote the book in response to the spread of socialism—including National Socialism— which at the time was a genuine existential threat to Western society. Since the fall of the Soviet Union, though, socialism isn’t the menace it used to be. Hitler is long gone.

The author is wrong that socialism is dead. While what Hayek calls "Hot" socialism is dead, the more mild version of socialism that manifest itself as the welfare state is the system that we find ourselves with. Look at Obama and the people he has put around him and look at how they describe themselves and examine their political philosophy. The prevailing political philosophy that prevails among the left and to a lesser extent the right is inherently socialist in its nature. This point does not need to be expanded for this audience. Fascism/State Corporatism is becoming the dominate global system. A good book that illustrates this is "Liberal Fascism".

The author attempts to point out the impossibility of eliminating central banking.

Libertarian minarchy is an elegant idea in the abstract. But the moment you get specific, the foundation starts to crumble. Say we started from scratch and created a society in which government covered only the bare essentials of an army, police, and a courts system. I’m a farmer, and I want to sell my crops. In Libertopia, I can sell them in exchange for money. Where does the money come from? Easy, a private bank. Who prints the money? Well, for that we’d need a central bank—otherwise you’d have a thousand banks with a thousand different types of currency. (Some libertarians advocate this.) Okay, fine, we’ll create a central bank. But there’s another problem: Some people don’t have jobs. So we create charities to feed and clothe them. What if there isn’t enough charity money to help them? Well, we don’t want them to start stealing, so we’d better create a welfare system to cover their basic necessities. We’d need education, of course, so a few entrepreneurs would start private schools. Some would be excellent. Others would be mediocre. The poorest students would receive vouchers that allowed them to attend school. Where would those vouchers come from? Charity. Again, what if that doesn’t suffice? Perhaps the government would have to set up a school or two after all.

Money was created not though the efforts of a central entity, but instead evolved through the experiences of millions of people throughout history. A central planning entity such as a central bank does not posses enough knowledge to properly manage a nations money supply, a fact that is becoming very evident as the age of fiat money is coming to an end. But I disagree with those calling for the "end of the Fed". The Federal Reserve could only be replaced over a long period of time after a complete transformation of the global economy, changes that won't occur and are impractical given the current state of affairs.

On the issue of government charity, given the current state of the nation; I support government performing the role that the private sector used to perform in the area of charity. It is a dangerous thing for freedom for government charity to trump private charity. The main reason the author sees as the need for a government cushion or safety net, lack of jobs, is created by government action that interferes with the free market. In a free market economy there will be enough jobs for those that want to work. And another rational for the government maintaining a huge social safety net is economic downturns, caused by government intervention and central banking expanding and contracting the money supply. There is not one economic downturn that was not caused by government intervention is the free market. We don't live in a free market and the current state of the economy is leading to an economic collapse. The government has replaced private charity through its excessive expansion into the private sector and by inculcating in the people through the education system a belief that government should be the one providing for charity which has taken away the impetus for private citizens to provide for this charity. So when the economy receives a major shock, that will have been caused by excessive government intervention in the first place, it is in the government's and society's interest that there be some safety net to provide for the basic necessities of the people. This economic shock will undercut the base of Maslow's Hierarchy of human needs food, water, security of body, employments, and other basic human needs. When this happens people tend to riot in the streets and demand that these needs be meet. This usually leads to revolutions and or the election of a Hitler that promises to bring an end to all the chaos and provide these basic necessities. In the current situation, there needs to be a huge government safety net, even if huge government created the need.

The main factor driving big government are those that can't accept the fact that some people will always be poor. These people fail to see the two main causes of poverty: human nature and excessive government. And they fail to see what the solution to ending poverty leads to: poverty spread out among a greater number of people. Some people are poor because they choose to be and/or they suffer from being raised in a poor culture; and the government's attempts at eliminating poverty end up creating more poverty, look at the results from the "War On Poverty".

And so on. There are reasons our current society evolved out of a libertarian document like the Constitution. The Federal Reserve was created after the panic of 1907 to help the government reduce economic uncertainty. The Civil Rights Act was necessary because 'states’ rights' had become a cover for unconstitutional practices. The welfare system evolved because private charity didn’t suffice. Challenges to the libertopian vision yield two responses: One is that an economy free from regulation will grow so quickly that it will lift everyone out of poverty. The second is that if somehow a poor person is still poor, charity will take care of them. If there is not enough charity, their families will take care of them. If they have no families to take care of them—well, we’ll cross that bridge when we get there.

This crash was caused by the government and state-charted banks. While there was no official Central bank in 1907, state-chartered banks were allowed to print bank notes, money, in excess of their bank reserves--inflation. Without sufficient reserves of hard assets to back up these bank notes, these banks notes became inflated and could not be redeemed in the advent of a bank run. After the creation of the Federal Reserve the Country has experienced more economic downturns and and over all more turbulent economic cycle. Again government action is the cause of the problem pointed out by the author and is also the rational for a government solution.

How can we be sure that are doctors are qualified to be doctors without government licencing and certification?

There are all sorts of situations the private market isn’t good at managing, such as asymmetrical information (I know my doctor is qualified to treat me because he has a government license) and public goods (it makes sense for the government to cover vaccines, which benefit everyone, not just the consumer). There’s also a consistency problem: Why should the government be responsible for a public good like national defense but not air-quality protection?"

The private sector is more than capable of developing mechanisms to determine the quality of service a doctor provides. One modern example would be an Internet rating system like you would find on EBay. Another example would be a private rating agency whose existence depended on how accurately they rated doctors which would mean that they would have to bear the cost of their failure to properly rate doctors. A doctor will not do well in a free market if he provides a poor service as no one would do business with him. Government certification of doctors along with the Union AMA helps to limit the number of doctors and drive up health care cost. Government action has led to more expensive, less abundant, and lower quality health care; but somehow more government interference of the type that caused the problem is the solution.

Should the Big Banks have been allowed to fail or should they have been bailed out? My natural reaction would be to not support this bail out, but what would have been the ramifications of allowing them to fail?

Or, say, a stable world financial system? Most of the libertarians I spoke with said they would have let the big banks fail in 2008. “I wouldn’t have done anything,” says French. 'The key to capitalism is you have to have failure.'

The financial crisis was not an indictment of their worldview, libertarians argue, but a vindication of it. Letting the banks fail would have been painful. But the pain would have been less than it will be now that the government is propping up the housing, banking, and automobile industries. Plus, the economy would have recovered by now. 'You’ve probably never heard of the depression of 1920,' says French. 'You haven’t heard of it because it came and went in one year, because the government didn’t do anything to prop up failed businesses.' (Other economists argue that the government’s response was actually consistent with the philosophy of John Maynard Keynes.) Letting banks fail would also avoid moral hazard, say libertarians, since investors wouldn’t take such risky bets the next time around.

It’s a compelling story. But like many libertarian narratives, it’s oversimplified. If the biggest banks had failed, bankers wouldn’t have been the only ones punished. Everyone would have lost his money. Investors who had no idea how their dollars were being used—the ratings agencies gave their investments AAA grades, after all—would have gone broke. Homeowners who misunderstood their risky loans would have gone into permanent debt. Sure, the bailouts let some irresponsible people off easy. But not intervening would have unfairly punished a much greater number.

Then President Bush said that he was told by advisers he trusted that if he did not bail the banks out then we would have been looking at the second Great Depression and the collapse of our economy. So he had to "abandoned free-market principles to save the free-market system". By the government intervening in the economy and bailing out these banks, the government has set up a future economic downturn that will be greater than what would have happened if he banks would have been allowed to fail and the necessary corrections in the economy to take place. When this collapse happens, many more people will be "unfairly punished" to a greater extent than if the banks would have been allowed to fail. Although, if by not bailing out the banks this would have led to a big economic downturn the people and government would not have been able to handle the shock that would have occurred and that could have possibly lead to a global economic depression that would have lead to lost of social cohesion and threatened global peace. Bailing out the banks just kicked the can down the road and delayed the day of reckoning, see what Neil Barofsky the special inspector general for the TARP stated. Again the government created a problem that required a government solution to avoid the possible disintegration of our society--a solution that will will still lead to the very situation it was designed to prevent.

Overall, libertarians just like communism or collectivism in general is a political philosophy that would only work if human nature could be changed to some extent. By human nature I mean the basically held philosophic beliefs that the vast majority of people hold. Modern Libertarianism does not admit or recognize this fact. They correctly view human nature as something that can not be changed, yet they fail to realize that this very fact makes their system impossible to be attained. John Madison, who some considered a libertarian, came close to stating this when he said "If men were angels, no government would be necessary". While no mainstream libertarian advocates no government, their view that government should be small and encompass a very limited sphere of an individual's life is incompatible with human nature and would only work "if men were angels". The fact that the average life span, about two hundred years, of a free society points to a flaw in human nature. The average person is not compatible with a free society as they are not vigilant enough to prevent their leaders from flattering them with pleasant words and promises of freedom from want nor are they vigilant enough to hold to the beliefs that are required for a free society. The early expositors of communism admits this need to change human nature when they stated the need to create the new "socialist man" and have attempted create such a man by eliminating around one hundred million people in the 20th century. What political system do we have? A middle-of-the-road system that can not permanently exist and fluctuates between the two extremes of anarchy and total government. It would be folly for any system to attempt to change human nature as the communist attempts at this have shown. A small government would require that a level of unattainable-perfection exist among the vast majority of people that could only be achieved by billions of people that refused to hold the philosophic beliefs required for a free society being eliminated( something that should not be done and has only been tried by the opposite political philosophy of libertarianism: communism). The best system that we can hope to obtain is a limited government that does not try to completely eliminate poverty or human misery and does not take on the role of God by trying to plan society; but instead creates a system that recognizes the imperfectability of human nature, protects private property, and creates a framework for the rule of law where human freedom can flourish; a system where people will accept the very unequal outcomes--a fact that is hard to accept for many people-- that results from this freedom and restrain themselves from taking on the role of God is the best we can hope for. In short there will be no perfect system of government and we must deal with the system we have which makes it impractical for small government solutions to be implemented: a system that it is leading to failure.