The Libertarian Delusion

[n2doc]

The free-market fantasy stands discredited by events. The challenge now: redeeming effective and democratic government

Robert Kuttner


The stubborn appeal of the libertarian idea persists, despite mountains of evidence that the free market is neither efficient, nor fair, nor free from periodic catastrophe. In an Adam Smith world, the interplay of supply and demand yields a price that signals producers what to make and investors where to put their capital. The more that government interferes with this sublime discipline, the more bureaucrats deflect the market from its true path.

But in the world where we actually live, markets do not produce the “right” price. There are many small examples of this failure, but also three immense ones that should have discredited the libertarian premise by now. Global climate change is the most momentous. The price of carbon-based energy is “correct”—it reflects what consumers will pay and what producers can supply—if you leave out the fact that carbon is destroying a livable planet. Markets are not competent to price this problem. Only governments can do that. In formal economics, this anomaly is described by the bloodless word “externality”—meaning costs (or benefits) external to the immediate transaction. Libertarian economists treat externalities as minor exceptions.

The other great catastrophe of our time is the financial collapse. Supposedly self-regulating markets could not discern that the securities created by financial engineers were toxic. Markets were not competent to adjust prices accordingly. The details of the bonds were opaque; they were designed to enrich middlemen; the securities were subject to investor herd-instincts; and their prices were prone to crash once a wave of panic-selling hit. Only government could provide regulations against fraudulent or deceptive financial products, as it did to good effect until the regulatory process became corrupted beginning in the 1970s. Deregulation arguably created small efficiencies by steering capital to suitable uses—but any such gains were obliterated many times over by the more than $10 trillion of GDP lost in the 2008 crash.

A third grotesque case of market failure is the income distribution. In the period between about 1935 and 1980, America became steadily more equal. This just happened to be the period of our most sustained economic growth. In that era, more than two-thirds of all the income gains were captured by the bottom 90 percent, and the bottom half actually gained income at a slightly higher rate than the top half. By contrast, in the period between 1997 and 2012, the top 10 percent captured more than 100 percent of all the income gains. The bottom 90 percent lost an average of nearly $3,000 per household. The reason for this drastic disjuncture is that in the earlier period, public policy anchored in a solid popular politics kept the market in check. Strong labor institutions made sure working families captured their share of productivity gains. Regulations limited monopolies. Government played a far more direct role in the economy via public investment, which in turn stimulated innovation. The financial part of the economy was well controlled. All of this meant more income for the middle and the bottom and less rapacity at the top.

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http://prospect.org/article/libertarian-delusion

[tblue37]

1. KnR. Since my R is only #4, I am kicking this for visibilty in hopes it will get the 5th

R that will move it to the greatest page.

[MisterP]

2. (US) libertarianism was invented by 1. America's Kita Ikki who never saw combat and ran the Navy's

R&D labs and 2. a depraved propmaster for deMille on Medicare; it was given its power by "endowments" from the Kochs, Hunts, and Christian Reconstructionist Gary North's outfit; its main thinkers are Austrian bureaucrats who sabotaged their Dual Monarchy in the 1900s and who either begged for Social when they came over or say that it's more moral to let a retarded child starve to death than to tax anyone to keep 'em alive

[JDPriestly]

9. Thank you!!!!!!

[Fantastic Anarchist]

12. Thank you for distinguishing US libertarianism, too.

The original libertarian movement (European) was distinctly socialist in nature.

[nxylas]

3. Probably why they're so invested in climate change denial

If the facts don't fit the theory, change the facts. Don't know how they explain away the other two. Probably some version of the No True Scot fallacy.

[Cryptoad]

4. Libertarians have become the Whores of the GOP!

nothing more,,,, nothing less

[DeSwiss]

5. As long as you know that the term is misused after having been hijacked by idiots.

K&R

[hopemountain]

10. yes! this is exactly what happened.

deception and guises by the gop. similar to the "patriots".

[Fantastic Anarchist]

13. Exactly this!

Thank you for making the distinction!

[mountain grammy]

6. Excellent read! Enthusiastic K&R.

[EEO]

7. It is hard to break people away from their delusions.

[Danascot]

8. Honduras Is Sold as a Libertarian Paradise -- I Went, and Discovered a Capitalist Nightmare

Relevant article on DU - http://www.democraticunderground.com/110838150

Direct link - http://www.alternet.org/news-amp-politics/honduras-sold-libertarian-paradise-i-went-and-discovered-capitalist-nightmare

[JDPriestly]

11. Best article ever. All DUers should take the time to read it. Brilliant and well researched.

This is the most solid, comprehensive argument against libertarianism and the current Republican delusions that I have read.

I like these parts, but the entire article is a MUST READ:

There is another, more fundamental point ignored by libertarians: The market itself is a creature of government. As Karl Polanyi famously wrote in a seeming oxymoron, “laissez-faire was planned.” Markets could not exist without states defining the terms of property ownership and commerce, creating money, enforcing contracts, protecting patents and trademarks, and providing basic public institutions. A Robinson Crusoe world never existed. So the real issue is not whether government “intrudes” on the market—the capitalist system is impossible without government. The practical question is whose interests the state serves.

. . . .

Unfortunately, the neat story of an inefficient, unjust, and calamity-prone market, contrasted with a public-minded government as democratic counterweight, is harder to tell in 2015 than it was, say, in 1965. Half a century ago, there were clearer bright lines between what was public and what was private. The state governed the market, producing economic security, opportunity, and rising living standards for most working families. But today’s reality of revolving doors and corrupt “public-private partnerships” blurs the argument, both as ideology and as politics.

. . . .

Based on the evidence, the case against the libertarian market and for democratic government is stronger than ever. But when government gets into bed with private industry and finance at the expense of regular people, the citizenry loses confidence in government. Republicans bet that if they could just hamstring government, more voters would either stay home or would conclude that they were better off voting for the party that wants to slash government. This cynical Republican view was rewarded with an increase in anti-government attitudes in public opinion. The turnout in 2014 was the lowest since 1942, and much of the falloff was among groups that vote for Democrats when they vote at all—minorities, the poor, and the young.

So if we are to win the argument with the libertarians, we need to take back effective government. Friedman was wrong to argue that the cure for market failure is more market. However, the cure for weak or corrupted democracy has to be more democracy. The only way to redeem public confidence in government as a necessary check on the market is to repair faith in democracy itself. It is not difficult to prove that the claim of market efficiency is delusional. Reclaiming our democracy will be harder—but it must be done.

http://prospect.org/article/libertarian-delusion

Read the article. It is a critique not only of the Republican agenda but of some of our Democratic politicians and agendas too.

It criticizes the "public-private" partnerships like the one in Chicago that is raising the cost of parking in the city. It explains why Obamacare although an excellent program, has run into so many problems and become the object of so much criticism and frustration.

As we pick the candidate who will lead our ticket in 2016, we need to stop and measure each contender by the yardstick of this article. Who will strengthen government's role in promoting opportunity and fairness? Who is least likely to dance to the corporate tune when government should be standing on its own and regulating corporations in order to promote a healthier marketplace and society? Who is most dependent on the corporations and their Wall Street overseers and thus most likely to further disable government as the watchguard of our economy and society?

Great article. Just can't say enough good about it. I love it.

[TheKentuckian]

14. Who cares about those thousands of people? The Turd Way marketeers are the ones putting that agenda

in place and doing it in our name with the support of their naive and/or uncaring marks in our party.