Governments Work for Special Interests, Markets Work for Ordinary People

As I’m in substantial agreement with Steve Horwitz’s response, I’ll concentrate on the contributions of Yglesias and Baker.

Reply to Matthew Yglesias

Matthew Yglesias is puzzled by Horwitz’s contention—and by extension my own—that markets are more beneficial than government programs. It’s not so much that he disagrees with it as that it seems to him beside the point: “the question facing government programs is not whether they are more or less beneficial than the existence of a market economy, the question is whether the programs are more beneficial than would be the absence of programs.”

I suspect the reason that Yglesias and Horwitz are talking past each other here is that Yglesias is thinking of the market economy as a basic background fact, on top of which one may or may not add various government programs. Even if oxygen is more crucial to human survival than clothing and shelter, it would be puzzling to point this out as an argument against food and shelter; analogously, I suspect Yglesias thinks, even if markets are more important for human well-being than government programs, that’s no argument against government programs.

From a libertarian standpoint, however, the market is not a substratum that persists unaffected through changes in policy; the market is the sphere of voluntary transactions, and so every law that either mandates or prohibits some transaction (for what else do government programs generally do?) shrinks the market. Libertarians object to such shrinkage both on grounds of justice (forcible interference with our neighbors’ peaceful activities treats those neighbors as though they were our property rather than our equals) and on grounds of efficiency (every reduction in the sphere of activities open to free competition increases the scope of the incentival and informational perversities endemic to monopoly).

Yglesias mentions that he opposes free-market solutions to pollution, but he doesn’t say what he takes those free-market solutions to be or why he opposes them. I fear he may think that the libertarian solution to pollution is to leave firms free to pollute; no, the libertarian solution is to make firms legally accountable for the damage they cause, thus preventing them from socializing the costs of their polluting activities.[1] Naturally enough, then, polluting firms tend to oppose the libertarian approach to pollution. Environmental regulation, however distasteful they may find it, is far less threatening to polluters than judicial liability, because it is easier for firms to “capture” a concentrated mass of regulators than a dispersed abundance of juries.

Since free-market rhetoric has so often been used as a cover for corporatist policies, how, Yglesias asks, can we now make use of it without thereby enabling the very corporatist strategies we oppose? The answer, I suggest, is that our use of free-market language must self-consciously and explicitly emphasize the difference between genuine and phony free-market solutions. We must persistently call BS whenever corporatist stratagems are either credited to or blamed on the free market—whether it is a President Sarkozy attributing the financial crisis to some supposed regime of laissez-faire or a President Bush wrapping the biggest corporate welfare handout in history in the mantle of the free market. We must develop a new (or revive an old) way of speaking about free markets, one openly aligned with left-wing ideals and openly hostile to corporate interests. While such a left-libertarian language will encounter resistance from traditional libertarians and traditional leftists alike, it is being explored and shaped even now by those on the libertarian left.[2] I invite libertarians and leftists alike to join in the process.

Reply to Dean Baker

Dean Baker is skeptical as to whether replacing “intellectual property” laws with a noncoercive system of securing payment for intellectual innovators can ensure “that sufficient funds are devoted to the task.” My question is: “sufficient” by what standard? That of consumer preferences—or of special interests? If we prefer that consumer preferences prevail, then the venue for making such decisions should be the one that is most responsive to consumer interests—and that is the relatively accountable market sphere as opposed to the relatively unaccountable political sphere.

Baker is “not convinced that [my] mechanisms are workable or efficient.” How well would the specific mechanisms I’ve described work? Would they be the ones that prevail in a freed market? Like Baker, I don’t know. What I do know is that in a freed market any entrepreneur who could figure out how to overcome obstacles to satisfying the demand for intellectual innovation would stand to make a profit, and entrepreneurs in that situation are likely to devise solutions that those (like Baker and myself) whose income does not currently depend on solving such problems are not going to be as driven to discover. (Need I mention the lighthouse?) Moreover, on the market different ways of addressing these problems have to compete against each other, thus allowing their respective merits and flaws to be assessed.

By contrast, the salary of politicians and bureaucrats does not depend to the same extent on the ability to solve such problems—indeed in many cases there’s an inverse correlation, as government functions that perform less effectively tend to get more money thrown at them—so we would be unwise to look to them for as much creativity in addressing these issues; furthermore, whatever solution they do devise is likely to be imposed monopolistically on everyone, thus short-circuiting the competitive discovery process and leaving us unable to determine how well or badly the chosen solution would fare against competitors. Should the problem of securing adequate remuneration to intellectual innovators be entrusted to a system that creates incentives to solve it, or one that does not?

With regard to the funding of pharmaceutical research, Baker says he would have no objection to “an entirely voluntary insurance system” if only he could see “how to prevent free-riding.” Let me remind him that there once existed a voluntary system of health insurance for the working poor that was quite effective at keeping costs down and policing free riders – until the government shut it down.

[1] See once again the pieces I cited earlier – Murray Rothbard’s “Law, Property Rights, and Air Pollution” and Mary Ruwart’s “The Pollution Solution” and “Destroying the Environment.” For the application of libertarian principles to cases where the responsibility of each individual contributor to a pollution problem is marginal, see my own On Making Small Contributions to Evil.”

[2] By the “libertarian left” or “left-libertarianism” I refer to the fusion of libertarian and left-wing concerns that prevailed among 19th-century radical libertarians; was revived in the 1960s and 1970s by writers like Samuel Konkin (founder of the “Movement of the Libertarian Left”), Karl Hess, and (for a time) Murray Rothbard; and continues to be developed within the Alliance of the Libertarian Left. This usage is not to be confused with the recent, more narrow use of the term “left-libertarianism” to describe a neo-Georgist view on land ownership held by such writers as Michael Otsuka, Peter Vallentyne, and Hillel Steiner.

Also from This Issue

Lead Essay

  • Corporations versus the Market; or, Whip Conflation Now by Roderick T. Long

    In this month’s lead essay, philosopher and libertarian theorist Roderick T. Long draws a sharp contrast between corporatism and libertarianism properly understood. He argues that liberals, conservatives, and even libertarians have all been guilty to some degree of obscuring this difference, and that the quality of our political discourse has suffered accordingly. He suggests that libertarians should guard themselves against falling into the trap of “vulgar libertarianism,” in which all things good spring from business, and particularly from business as usual. Corporations, he argues, should be no more free from scrutiny than any other institution in society, and often businesses have done more than their share to hamper free economic relations in the industrialized world.

    One implication of all of this is that the truly free market is farther away than we imagine. Long suggests several ways in which a freed market would be different from what we see around us today. Notably, nearly all of these differences are to the benefit of the consumer and the small or start-up business. These likely outcomes of laissez faire suggest new grounds for left-liberals and libertarians to revise their thinking on economic issues and on politics more generally.

Response Essays

  • Politics Compromises the Libertarian Project by Matthew Yglesias

    In his response to Long, Matthew Yglesias argues that although corporations naturally seek to win special privileges from the state, libertarianism is far from the obvious solution to the problem. Instead, he reiterates the charge that libertarians often act as corporate apologists and suggests that the net effect of any “free market” advocacy will tend strongly toward corporate power. Liberals may have much to learn from libertarians on certain issues and in some policy areas, but the laissez-faire solution to corporate political influence is unworkable.

  • Untangling the Corporatist Knot by Steven Horwitz

    Steven Horwitz offers several examples of so-called “de-regulation” that only served to benefit corporations, while leaving the government, and therefore the taxpayers, to shoulder the risks of the market. He argues that market competition is a form of regulation, albeit a kind worth wanting, as it forces corporations to respond to consumer demand and punishes them when they fail to meet it. He takes issue with Long’s lead essay by arguing that “playing defense,” that is, defending today’s corporations when they act consonantly with a fully freed market, is a valuable part of libertarian advocacy. One must nonetheless take issue with these same corporations when they violate the principles of laissez faire and distinguish carefully between these cases.

  • Libertarians and Corporate Power: Actions Speak Louder Than Words by Dean Baker

    In his response essay, Dean Baker declines to tally up a “score” of how well libertarians, or other groups, have defended a truly impartial, laissez faire economy. Instead, he suggests intellectual property as an obvious area where libertarians must challenge corporate power to distort the market. Patents that make health care more expensive and copyrights that artificially restrict whole areas of our culture are obviously concessions to corporatism, and the “extraordinary abuses” undertaken to enforce these privileges should be vigorously challenged. Although libertarianism has been skeptical of both patents and copyrights, Baker suggests that this is an area deserving still further attention, and one in which liberals could perhaps become solid allies.

  • Cato Scholars Respond by The Editors

    The discussion this month has focused to a greater than usual degree on the activities of certain Cato Institute policy scholars. The editors thought it appropriate to solicit responses, and we present them here in their entirety.

The Conversation