The economics of Libertarianism

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Interesting book review of Jeffrey Miron’s “Libertarianism, From A-Z” at the New York times. Like most -isms Libertarianism would appear to mean different things to different people. Although, perhaps not quite to the same extent as within Socialism – see Chomsky’s attack on Lennism / Trotskyism & the USSR and contrast that with the varying degrees of state management and redistributionism that pass for socialism as advocated by political parties throughout Europe. Perhaps surprisingly, in his book, Miron argues that Libertarianism can encompass a strong state and redistribution of wealth to the poor.

Libertarians are rarely anarchists. Almost all of them believe in some form of state power, at the very least the protection of private property and the enforcement of contracts. Many of them, including Milton Friedman, are quite comfortable with larger exercises of state power, including the redistribution of resources to those who have less. Professor Miron writes that “antipoverty spending is the most defensible kind of redistribution,” because “the goal of this redistribution – helping the poor – is reasonable and the costs of a well-designed limited antipoverty program (e.g., a negative income tax set on a state-by-state basis) are modest.

Tim Worstall touches on a similar topic on his blog – a famine in Niger and how free-market advocates should deal with such

Right, famine. Horrible: we should do something about it. As, indeed, we do. As mentioned above, there’s nothing in any free market philosophy that says the starving should be left to starve: nothing that excludes charity.

OK, now, what should we do about it? Yes, we know the signs: the pastoralists are slaughtering their cattle as the pasture dries up, meat prices are falling. This is a well known sign of impending problems (see, markets can actually send us signals through prices!).

We could:

1) Send food aid. This tends to take 6-10 months to arrive. Not much good for those who will starve in the next few months. We could give that food away. This discourages farmers from planting the next crop: why make all that effort to grow millet (for example) if the market is full of free stuff? So, the free food aid route is late and has the unfortunate side effect of entirely killing farming where the food is given out.

Or we could:

2) Give poor people money. With this they can go and buy food. We have preserved the market and the incentive for the next crop to be planted, raised and harvested. And we have also stopped people dying in the interim. Plus, handing out banknotes is really rather faster than shipping food in. Can be done in a couple of weeks if people get their skates on.

He reprises the Irish famine, an incredibly traumatic event deeply magnified by a heartless intrepretation of laissez-faire (free) market principles of the time -

Amartya Sen is a Nobel Prize winning economist. He won his prize for his studies of famine in the 20th century. More specifically, what causes them and how to deal with them.

His most important observation was that famines do not come about because of a general shortage of food. As several will note, Ireland exported food during the Great Famine: Ethiopia during the one of the 80s. What actually happens is not the absence of food. It is the absence of purchasing power, of the money to buy the food, among certain segments of the population.

So, the answer is not to screw over the farmers by offering everyone free food: it is to give money to purchase food to those who do not have the money currently to do so.

So perhaps we’re beginning to reach a consensus? Liberal markets bring many benefits – but action is still needed to protect those in need.

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  • Greenflag

    ‘It is the absence of purchasing power, of the money to buy the food, among certain segments of the population.’

    Again theory . Money itself is no use unless it’s seen as having value . The Weimar Republic printed lots of money but it did’nt stop the German middle and lower middle classes from being emisserated . When you wake up some fine morning and find your life savings and accumulated pension funds won’t buy your evening dinner then the ‘totalitarian ‘ extreme of either left or right looks a whole lot more plausible as a down and out mustachioed former WWI army corporal discovered . A little imagination and finding the ‘proper’ scapegoat is then all that’s needed to unleash the dogs of war and even more human misery :(

    Mr Osborne’s budget will have the effect of a reverse stimulus on the UK economy as those unaffected will spend less and those at the bottom of the deck will spend the extra income on either more beer , ciggies , or cheap Chinese imports :(

    BTW the German farmers did very well during the Weimar times . Whereas the urban lower middle and working classes divided up into Nazis and Reds the farmer sold them both food for barter i.e gold , silver , valuables , women , child labour etc etc .

    Human beings can be beastly when they are between a rock and a hard place . Ask any Uzbek in Kyrghizstan today :(

  • http://www.organizedrage.com/ mickhall

    Mack

    Libertarianism in traditional terms means the maximization of individual liberty in thought and action and working towards the eventual abolition of the state, indeed in the latter its aim is no difference from Marxism, although the latter claim the state will eventual whither away.

    What you are, like Friedman and the clique of ex stalinists who hanged onto Thatchers coat tails in the UK, is a reactionary right winger who wishes to ring fence the unacceptable face of capitalism by using state power and in the process you are trying to dress your self up as some kind of radical who cares about the less fortunate in the world, Whilst being a cheer leader for the economic policies that places billions of people into poverty.

    Of course it was no accident that advocates of the Chicago school of economics paid their own fares to jump on a plane down to Chile to support the dictator Pinocet. They went there because the murdering thug gave them free reign to experiment with their cruel and heartless economic theories.

    Unfortunately for them, smart words and self delusion could not wash away the blood of the Chilean people they waded through to carry out their economic flummery which ended up impovering a large section of Chilean society.

    Exploiting the economically disadvantaged is written into the genes of those you admire, for example Chile had the most advanced democracy and welfare state in South America until your heros turned up, so stop trying to rewrite history as your heros have blood on their hands.

  • Alias

    Tim Worstall’s comment is a textbook example of the folly of binding your thought processes too tightly within the parameters of a doctrine. While the problem of famine can be seen as a shortage of money rather than a shortage of food, the immediate problem of starvation cannot be resolved by freely distributing the means to buy food. What would happen is that the price of the available food would rise due to its scarcity and urgent need while the purchasing power of the distributed money would fall, putting the food beyond the means of those who are straving. The food producers within the afflicted region would also become dependent on the subsidy, and would end up as inefficient food producers much like those farmers who became dependent on subsidies within the EU. At any rate the core problem is one that can’t be solved by providing the means to satisfy the demand since it is a problem of supply: overpopulation and carrying capacity. Without farming the human propulation would number no more than a few hundred thousand, so it is already 20,000 times higher than it should be and it is projected (INR) that soil degradation and population growth in Africa will mean that it will only able to feed 25% of its population by 2025.

    Incidentally, Noam Chomsky is a left-libertarian. I would put myself into the category of conservative libertarian, whereas Mick Hall would (wrongly) put you into the category of anarcho-capitalist (also libertarian) whereas I would see you as a paleolibertarian (basically the same as the conservative variety but without the formal conservatism and with a deep faith in the Austrian School).

  • Mack

    Mick that is bonkers.

    During the cold war the CIA backed a right-wing coup against a Marxist government in Latin America. The USA was at war with international communism, and south America turning red was a serious geo-political threat.

    The University of Chicago had a long standing arrangment with the Catholic University of Chile (dating back to the ’50′s) – that meant pupil transfers and many Chileans studied at the world renowned economics department at the university under the nobel prize winning professor Friedman. When Pinochet was looking for economic advisors he chose Chileans – the top right wing economists in Chile had studied in Chigaco. Economists did not fly down from Chicago to run the economy – Chileans had been educated in Chicago.

    Don’t take everything Naoimi Klien says at face value – she slates Friedman’s voucher based education system in the shock doctrine – elsewhere it’s widely recognised as progressive and is in fact the model on which Sweden’s education system is based (and yet Klien says she favours the Swedish model!). If it means anything to you I got about 6 pages into ‘No logo’ and had to stop there were so many misinterpretations in the open pages it was undreadable (including bemoaning ‘temporary workers at Microsoft’ – this during the dot.com bubble when tens of thousands of software engineers were working as contractors because it paid phenomenally well. The exploitation she describes didn’t exist).

    Some background reading -

    http://en.wikipedia.org/wiki/Chicago_Boys

    http://en.wikipedia.org/wiki/Miracle_of_Chile

  • Mack

    Chile in advance of the coup was no utopia Mick.

    During the first quarter of 1973, Chile’s economic problems became extremely serious. Inflation reached an annual rate of more than 120 percent, industrial output declined by almost 6 percent, and foreign-exchange reserves held by the Central Bank were barely above US$40 million. The black market by then covered a widening range of transactions in foreign exchange. The fiscal deficit continued to climb as a result of spiraling expenditures and of rapidly disappearing sources of taxation. For that year, the fiscal deficit ended up exceeding 23% of GDP.

    http://en.wikipedia.org/wiki/Economic_history_of_Chile#1973

  • Mack

    He’s right Alias.

    If local prices rise to the level achieved by export then food won’t be exported. If for some reason it did and prices rose further, it would then be cheaper to import food. Either way – no famine.

  • http://www.organizedrage.com/ mickhall

    CIA backed a right-wing coup against a Marxist government in Latin America.

    Mack

    UFar from being bonkers, unlike you I would guess, I was not in short trousers when the Allende government was voted into power in Chile, nor when it was overthrown in a bloody military coup. So I have no need to read Ms Kline or what ever her name is.

    That’s right mack, voted into power, democratically elected, one man, one woman, one vote, that sort of stuff. It can happen you know, for example the marxist government of West Bengal has just been voted out of office after decades of being voted in to power in the Indian State.

    Just as Allende could have been if the conservatives in Chile gained enough support. The fact is they could not, hence the CIA’s creature Pinochet instigated a military coup against a president he had taken an oath to serve.

    Lets s be clear here, you believe it was correct for the fascist Pinocet to overthrow a democratically elected government.

    Just so we understand the type of man you are and where your politics are coming from. Yes or no?

    By the way cut the attempt at sleight of hand, deal with the issues I raised, I never once mentioned the nationality of Friedman’s ‘boys’ who at Pinochet request, and on the recommendation of the CIA went south to wade in the Chilean workers blood.

    Just to stop you trying the same despicable trick as you did above, I will ask again.

    Do you support democratically elected governments being overthrown in military coups, and do you feel it is an honourable thing for a The Chicago school of economics to restructure the economy of a country run by a Fascist Military dictator.

    Allias

    Mack is no different from all the US conservative reactionaries who pose as libertarians, when push comes to shove, they retreat back behind the armed might of the State.

    What type of libertarianism is that?

  • Mack

    Lets be clear here, you believe it was correct for the fascist Pinocet to overthrow a democratically elected government.

    No I don’t. I don’t think a frail university professor was responsible either. I just find your attempt to argue against an economic school of thought by associating it with actions of a dictator during the cold war extremely lame. I’m sure The Shining Path in Peru (among many other socialist murder gangs) didn’t cause you sleepless nights questioning the morality of you socailist beliefs. So why do you feel obliged to hold others to a bizarre standard you yourself would probably reject?

  • Alias

    He’s assuming that the country is capable of producing enough food to feed its citizens if the food wasn’t exported, which is something that the INR pointed out even the continent of Africa – never mind its individual countries – are incapable of doing. Africa will only be ablse to generate enough food to feed 25% of its people by 2025.

  • Alias

    Here you go:

    “Karl Harmsen, Director of UNU’s Ghana-based Institute for Natural Resources in Africa, says that should soil conditions continue to decline in Africa, nearly 75% of the continent could come to rely on some sort of food aid by 2025.”

    http://news.mongabay.com/2006/1214-unu.html

  • tierney

    Let’s be careful in describing the ‘Sen’ solution to famine. His observations were developed out of an analysis of the terrible Bengal famine of 1943, when the harvets was no different in size to the previous year’s, but wartime conditions led to a collapse of purchasing power among the poor. there were some similarities in Ethiopia in the 1980s. But it does not mean that all famines conform to this, and Sen would not argue so. It is not at all clear that there was sufficient food to feed Ireland within it in the late 1840s – just because food was exported is no evidence of this fact, only that the food commanded a higher price elsewhere. It is true that some of the worst mortality came in fairly industrial districts, such as north Armagh, where a collapse in demand for industrial products left people without income. But the lesson is to take each famine, or potential famine, with due respect to the local circumstances. Sen’s recommendations on maintaining the spending power of the poor are more to do with effective and enduring welfare systems than distributing money in repsonse to short-term crisis – which might just encourage hoarding and drive up prices even more, if a famine situation is already under way..

    Of course, being a Nobel Prize winning economist doesn’t make you right. It is not a club of people who have got the answers, but a group of people distinguished by happening to be respected by a group of Swedes in that particular year. Amartya Sen and Paul Krugman might agree on a lot. They might agree with some, but less, of what Elinor Ostrom has to say. And none of those would have very much time for the opinions of Milton Friedmann.

  • http://www.organizedrage.com/ mickhall

    Mack

    Come on, do not start the sleight of hand crap again, I never said Friedman was responsible for the Pinochet coup nor that he play any part in it. Lets debate like adults, not little boys, one minute you are using Friedman Noble economic prise to boost his reputation, the next you talk of a frail university professor. It is possible to be one and the same

    I asked you a direct question which you have refused to answer, I will re-word it and try once more.

    Do you feel it is an honourable thing for a Chicago school of economics professor to recommend to graduates of that institution to help restructure the economy of a country run by a Fascist Military dictator who took power in a military coup which murdered the democratically elected president of Chile. What could a true libertarian and such a man have in common?

    Yes or no?

    For christ sake economics cannot be divorced from politics,
    with your knowledge of the Irish economic crash you understand that. It was not because he had a bushy beard or a pistol in his pocket that the British government in the 19th century regarded Karl Marx as the most dangerous man in Europe.

    By the way, I argue against this particular economic school of thought because it it self associated itself with a dictator and by doing so impoverished the Chilean working classes. How? by helping to deregulate the Chilean economy, removing the rights of workers under threat of imprisonment, and refusing to condemn and argue against the arrest and murder of countless trade union leaders and rank and file members.

    If there is one lesson we learnt from the experiments with Friedman’s economics, whether in Chile, Thatchers Britain or in other parts of the 3rd world, it is it cannot be implemented without State oppression, and the passage of restrictive labour laws.

    The only thing this type of economics liberates, is the exploitative tentacles of multi national corporations and the unacceptable face of capitalism.

    In other words, as with Marxism, a sane rational person judges such theories by the company they keep.

  • Munsterview

    There is no universal idea worthy of the name that cannot be translated through the National and regional scale right down to the living conditions of each family unit !……… President Allende

    The President did indeed do just that : he crisscrossed Chile with his ideas advocating, lecturing and persuading until his message reached tipping point and ignited through the masses. Of course he won the election and he was there to stay!

    Allende could not be voted out of office: he could only be murdered and what he stood for overthrown by force, so thorough and inspirational had he done his work.

    As the old saying goes if democracy could change anything any thing they would change it !

    When it looked like doing so in Chile they did just that, got rid of it……. and in the process all who advocated and guarded democracy also.

    Let us not forget that this too was part of a process that happened not only in Chile but also in the Six-Counties with interment without trial, torture interrogation and shoot to kill as part of a State policy. Brigadier Frank Kitson was made GOC of the British Armed Forces for writing the manual on and advocating such dirty tactics.

    Neither did The Queen of England see anything much wrong with those who advocated these policies : General Kitson was one of those she choose for her Aid de Camp for some years !

    Message given loud and clear for all with eyes to see.

  • Mack

    Do you feel it is an honourable thing for a Chicago school of economics professor to recommend to graduates of that institution to help restructure the economy of a country run by a Fascist Military dictator who took power in a military coup which murdered the democratically elected president of Chile

    Except he didn’t make any such recommendation. The Chicago Boys were already working economists in Chile, they’d already produced an economic manifesto “The Brick” in opposition to Allende. When Pinochet took power he decided to implement it.

    FWIW Friedman offered economic advice to very many regimes many of them with terrible human rights records (including 1970′s China). What limited contact he had with Chile was very limited. Is it ok for an economist to advice such regimes on how to boost their economies and hence the prosperity of their citizens? I would say yes, provided ithe advice is used ultimately for the benefit of the citizens and not for military expansion. And most economists do provide advice one way or another. Paul Krugman advises Barack Obama on how to fix the USA economy while their troops still occupy Iraq.

    If you asking me do I approve of the coup – no I don’t. Bringing it up in the first place moves the debate from economics to war / geo-politics as well you know.

  • Mack

    In other words, as with Marxism, a sane rational person judges such theories by the company they keep.

    You will find few economic theories that have not been borrowed by hands that are unclean, and I would submit to you that would be a poor standardby which to judge them by. Hitler loved Wagner, should we ban Acopolypse Now ?

  • Mack

    Amartya Sen and Paul Krugman might agree on a lot. They might agree with some, but less, of what Elinor Ostrom has to say. And none of those would have very much time for the opinions of Milton Friedmann.

    The differences are what defines them, but in Krugman’s case he has in the past highlighted areas where he thought Friedman right as well as areas he thought him wrong.

  • Mack

    @Alias & Tierney

    It doesn’t actually matter whether enough food is produced within the state to feed everyone. What does matter is that giving food aid may undercut the market for food production and may create a dependency on food aid (reducing the likelihood subsistence farmers will replant next year for example). Giving money (which admitedly may undercut the market for earning money full stop) at least allows locals to purchase what food is produced locally – therefore encouraging farmers to replant & try and increase yields for next year) and import the rest.

  • http://www.organizedrage.com/ mickhall

    Mack

    OK, you are unwilling to answer my question, that is your right, but it does display a lack of confidence in what you write. What this also tells me is you attempt to separate economic theories from the realities of life when they are put into practice.

    As someone on the political left, I am ever conscious of where such blindness led many leftist who became active politically to help build a better world, Stalinism, Pol Pot, etc. hence I set a democratic bench mark over which I will not cross.

    This is one of the reasons I am unprepared to give you an inch, as you come on here and claim to blog in the abstract, yet you cannot be oblivious to the victims of Friedman’s theories, this being the case I can only conclude you see such people as collateral damage, unworthy of respect and concern.

    This is not surprising to me as it is something the English and Irish middle classes have always been wilfully blind too and willing to concede. As long as none of their own number find themselves in that trench.

  • Mack

    I’ve answered your question, and your attempt to smear a peaceful man. You could easily have argued on the facts – as say Paul Krugman did here

    http://krugman.blogs.nytimes.com/2010/03/03/fantasies-of-the-chicago-boys/

    (responses alternative views -
    http://krugman-in-wonderland.blogspot.com/2010/03/krugmans-chilean-fantasy.html
    http://www.marginalrevolution.com/marginalrevolution/2010/03/krugman-on-chile.html
    http://www.marginalrevolution.com/marginalrevolution/2006/12/how_good_was_pi.html)

    Have a read of Hernando de Soto’s bio below, if you really think liberal economists are evil this might change your mind (but somehow I doubt it) -

    http://www.cato.org/special/friedman/desoto/index.html

  • Driftwood

    Just for the record, Salvador Allende was not murdered, he committed suicide.

    http://en.wikipedia.org/wiki/Death_of_Salvador_Allende

    And PresidentAugusto Pinochet saved many more lives with his economic achievements than the few who were killed in the gunbattles during the coup.

  • http://www.organizedrage.com/ mickhall

    “If you asking me do I approve of the coup – no I don’t.”

    Mack
    Then how can you possibly concede it was correct for Friedman’s economic theories to be put into practice during the years of the Pinochet regime. If there had been no military coup, Friedman’s reactionary economic theories would not have been given house room in Chile.

    Agreed?

    Thus Friedman and his acolytes surfed on the back of a fascist military dictatorship.

    By the way, I would bet my pension if I changed the words ‘Friedman’ to ‘Marx’ and ‘fascist military dictatorship,’ to ‘Stalinist dictatorship,’ you would not have raised a single squeak. Now would you?

    Please save any talk about the separation of economic and politics for the kindergarden.

  • Mack

    By the way, I would bet my pension if I changed the words ‘Friedman’ to ‘Marx’ and ‘fascist military dictatorship,’ to ‘Stalinist dictatorship,’ you would not have raised a single squeak. Now would you?

    There have been many left-wing marxist guerilla movements against democratic governments. If you wish to discuss the policies of any go ahead, it would be better than discussing the Chilean coup.

  • tierney

    Well, it might and it might not; as always, such strategies depend on local conditions, opportunity costs for farmers, and so on. I don’t think anyone suggests that simply hitting a problem in the long term with food aid and little else is a wise choice. But it is very doubtful whether in many cases the infrastructure exists to easily match up demand for food (whether backed by money transfers or not) with potential suppliers, even where there is will on both sides. Obviously ‘the state’ is an arbitrary unit when it comes to determining food supplly but it is very rare that it does not matter as a food-producing unit – not least because it is the monetary unit, and all these transfers can effect exchange rates. Economics 101 might provide some ideas to think about for policymakers, but it is not so good at providing clear-cut answers – as many policy folk realized some time ago, but not yet enough of them.

  • tierney

    @Driftwood

    I presume Driftwood is also a strong supporter of the 1950s and 1960s Maoist regime in China, whose health policies saved far more lives than than even the same regime managed to destroy through their policy-induced famines.

  • Mack

    That’s a fair point, and in fairness I think Tim Worstall was making a theoretical point rather than a practical one. I.e. that it does not run contrary to free market economics to help people. Of course such help constitutes a market intervention – but even the Libertarian’s aren’t opposed to that it seems. So it looks like it’s all a matter of degree, or maybe more to the point a matter of determining the conditions under which markets fail and can be repaired.