The economics of Libertarianism

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.

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm

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