About those wacky libertarians By Scott Sumner

Will Wilkinson has a post discussing libertarianism. He points out that many libertarians are disdainful of politics. They tend to be ideological purists who are so anti-government that they are reluctant to get involved in the rough and tumble of political horse-trading.

Non-libertarians tend to view libertarians as extremists, who are obsessed with “rights” to the exclusion of all other considerations. Progressive intellectuals are not persuaded by arguments that, “the FDA should be abolished, because no one has a right to tell me what I can or cannot put in my body”.

In this post I’d like to distinguish between libertarianism as a political philosophy and libertarian public policies. I’ll make two arguments:

1. There are arguments for laissez-faire that are far more powerful than most non-libertarians assume.

2. Libertarian public policies are far more effective than one might expect (using common sense.)

In other words, non-libertarians are lulled by the unimpressiveness of most real world libertarian arguments into assuming that all the arguments for libertarianism are very weak, whereas there are actually some quite powerful arguments.

A recent essay by Steve Landsburg reminded me of my years at the University of Chicago. After three years at Chicago I could offer very effective arguments for some pretty extreme libertarian positions. Over the following 35 years those debating skills atrophied, as I was no longer enmeshed in cutting edge economics. (I focused on a narrow area of monetary history.) But when I read Landsburg, and any of the George Mason bloggers, I am reminded of the skills I have lost. I see people who have kept up with the field.

Obviously it’s hard to explain this to people who have not had a Chicago-style education. The best I can do at the moment is to direct your attention to this very thoughtful critique of the libertarian view of labor markets, by Scott Alexander. And then read this reply by Bryan Caplan, which is far superior to anything I could have written. But even so, Bryan’s response (focusing on theory) is only one of many that could have been offered. Another strategy would have been to point to empirical evidence that public policies aimed at improving labor market outcomes are usually counterproductive. For instance, studies show that OSHA does not improve workplace safety.

Bryan argues that his rebuttal to Scott is based on mainstream neoclassical economics, not fringe libertarianism. There’s a sense in which that is true, and another sense in which it is misleading. Take my previous post, which argued that there should be no taxes on capital. You can certainly find many progressive economists who have made the same argument. And there is a sense in which that view represents mainstream economic thinking. In the comment section Don Boudreaux pointed out that even John Stuart Mill made a similar observation, 170 years ago. But it’s also true that Bryan’s views on the efficiency of labor markets and my view of capital taxation is probably held by no more than 20% of economists. Indeed I doubt whether more than 30% of economists are even aware of these arguments. I had forgotten them until I read Bryan’s post.

I would not have made this claim back in the 1990s, when people like Paul Krugman and Larry Summers offered many “conservative” sounding arguments. But they no longer make very many pro-free market arguments, and the profession as a whole has definitely moved to the left. Ideas such as minimum wage laws and fiscal stimulus and capital income taxation are now much more mainstream among the elite.

The views of average economists change much more slowly; indeed many never even heard that in the 1990s fiscal stimulus was abandoned by the elite, before being rediscovered in 2009. When I think of average economists I think of someone who believes “externality arguments” provide a justification for government regulation of smoking, whereas on closer inspection they do not.

If you are a progressive who has encountered libertarian ideas based on natural rights, you may not know that there is another set of arguments for abolishing the FDA, based on empirical studies of type one errors, type two errors, incentives of regulators, etc., etc.

Because I’m a pragmatic libertarian, I’m not reflexively opposed to all government programs. I’d be happy to see the FDA, SEC and OSHA be abolished, but would be less comfortable with abolishing the EPA and FTC. But despite my wishy-washy form of libertarianism, I actually have great respect for the more extreme forms of the ideology. I don’t think that most adherents of the extreme form of libertarianism make good arguments, but I do think they might be correct, despite their weak arguments.

Consider areas where even pragmatic libertarians in the tradition of Milton Friedman might see a role for government; police and fire protection, education vouchers, etc. Then consider the following:

1. Denmark (a favorite country of progressives) has private provision of fire protection.

2. San Francisco (another progressive favorite) has private provision of police services in some areas, and the quality is apparently higher than for the government police, according to the metrics that progressives might want to use.

3. Friedman probably favored vouchers because it’s “obvious” that otherwise the poor would not be able to afford an education. Except there is just one problem with this assumption. Tens of millions of the world’s poorest students (who are an order of magnitude poorer than America’s poor) do attend private schools without vouchers, throughout many of the poorest regions of South Asia and Sub-Saharan Africa. So maybe it’s not “obvious” that the government must play a role in education.

In 2010 there were an estimated 1m private schools in the developing world. Some are run by charities and churches, or rely on state subsidies. But the fastest-growing group are small low-cost schools, run by entrepreneurs in poor areas, that cater to those living on less than $2 a day. Private schools enroll a much bigger share of primary-school pupils in poor countries than in rich ones: a fifth, according to data compiled from official sources, up from a tenth two decades ago (see chart 1). Since they are often unregistered, this is sure to be an underestimate. A school census in Lagos in 2010-11, for example, found four times as many private schools as in government records. UNESCO, the UN agency responsible for education, estimates that half of all spending on education in poor countries comes out of parents’ pockets (see chart 2). In rich countries the share is much lower. One reason for the developing world’s boom in private education is that aspirational parents are increasingly seeking alternatives to dismal state schools. In south and west Asian countries half of children who have finished four years of school cannot read at the minimum expected standard (see chart 3). In Africa the share is a third. In 2012 Kaushik Basu, now at the World Bank but then an adviser to India’s government, argued that India’s rapidly rising literacy rate was mostly propelled by parents spending on education to help their children get ahead. “Ordinary people realised that, in a more globalised economy, they could gain quickly if they were better educated,” he said.

In other words we’ve seen a huge global gain in education for the poor, a prime progressive goal, propelled by a radical libertarian ideological solution—private schools for the poor. Paid for out of pocket, no vouchers. And I’d guess 90% of progressives don’t even know it happened.

I’m not claiming that any of these anecdotes are slam dunk arguments for private police, fire protection or schools. Indeed I have consistently advocated voucher systems, despite the evidence that they are not needed. Rather I’d make a different argument. Most progressives I talk to are not even aware of the arguments for abolishing the FDA, or for not regulating tobacco. They’ve never even heard the arguments. They are not aware of Denmark’s private fire service, or San Francisco’s private police force, or the enormous growth in private education in the third world (motivated by the appalling incompetence of the public schools in those regions.) Or they are appalled at how the “free market” in drugs is ripping off American consumers, without being aware that this is due to a government regulation that bans the importation of drugs from cheap foreign producers.

Without being aware of the serious arguments for laissez-faire, progressives are in no position to be contemptuous of the ideology. Until they’ve done their homework, they haven’t earned that right.

PS. To head off comments on smoking, let me explain why the externality argument doesn’t call for regulation. There are two arguments. One is that smokers impose budget costs on society through spending on Medicaid/Medicare, etc. This is true, but vastly overstated. Nonsmokers live much longer, and still end up dying of something. They still need Medicare. They also collect significantly more Social Security. The net budget cost imposed by smokers would call for just a very low cigarette tax; far, far lower than the current tax. The other argument is second hand smoke. That does call for regulation, but economic theory suggests that the optimal regulator is the owner of the property where the second hand smoke occurs. The owner of the restaurant, office building, or airline, is optimally placed to regulate the activity, weighing the costs and benefits of a ban. There is no market failure argument here. If second hand smoke in open air was a problem, say in parks, then government regulation would be called for on standard Coasian “transactions costs” grounds. But there is no evidence that second hand smoke outside of enclosed spaces is a significant health problem. This is EC101 economics, but I rarely meet economists who know this stuff.