Thursday, June 10, 2010

Free(Market)Dom

In a recent blog post, science fiction author David Brin cites these two ideals as the core of libertarian thought:


Freedom and Fair Competition


Brin's science fiction is great, but in recent years I've grown quite impressed with his thinking on political issues. (Sometime I'll delve more deeply on his thoughts about the importance of transparency, but until there you can read about it on his site.)

Why does Brin feel the need to recap these core principles of libertarianism? Well, it may be because some of the most fervent libertarian conservatives seem to have gotten their priorities a bit confused. Regularly, I hear people claiming to be libertarians, and their solution to everything is for the government to remove essentially all regulations. They want markets to be absolutely free. That's all they talk about.

And free markets are certainly great things, as the history of the United States - married early on to the economic theories of Adam Smith by the first Secretary of the Treasury, Alexander Hamilton - has shown us. But they aren't magical. They don't fix everything all by themselves. They are, according to Smith, the ideal economic system, because they provide the most robust ways of dealing with the inherent flaws in human nature. We cannot be trusted to do the right thing, which is why we should trust the "invisible hand" of the free market. And a free market should certainly be, if anything, free, right?

With Great Power Comes Great Responsibility
However, as conservatives frequently remind us, freedom comes with responsibility. The individual has responsibilities to society, to behave in a moral manner, and there need to be forces in place to prevent individuals who break those responsibilities in a way that negatively impacts other individuals or corporations. That's why, if you kill someone or steal a car from a car dealership, you will go to jail.

Having a "free market" that contains no legal constraints of any kind makes as little sense as having social freedom with no legal constraints of any kind. It's a simple SAT analogy:

Regulations are to companies as laws are to individuals

(Of course, "regulations" are often enforced by "laws," but you get the idea.)

Few conservatives of any stripe would argue that if all laws were abolished, then society would function better. (Libertarian darling Rand Paul recently made such a claim, but only if everyone were Christian!) But these same people seem to believe that the economy would function better if essentially all regulations were removed, and companies were able to act based exclusively on economic self-interest.

But no one really believes that this freedom should be completely unfettered. When's the last time there was a conservative who suggested, for example, that the sex trade should be unregulated? Prostitution could be a major growth industry, if only the interference of the government were removed. (Look at Nevada!)

Conservatives and liberals both believe that laws are good things, to prohibit undesirable behavior in individuals ... they just disagree, here and there, about which actions should be classified as undesirable. They disagree about where the threshold between freedom and restriction should be set. It's a perfectly legitimate disagreement, and worthy of debate. (A lost art, according to political philosopher Michael Sandel.)

Privatized Gains and Socialized Losses
There's a major problem in the way the libertarian ideology is being marketed, especially by the tea party protesters who (in their rhetoric, at least, if not in actuality) want to abolish essentially all government interference. The problem is clear in this quote from Michael Lewitt (obtained from Brin's blog):

... the United States has strayed from a free market model to a system that privatizes gains and socializes losses.

The economic collapse in recent years was triggered by precisely this structure of things. The government put in place a system of insurance to protect the banks, so that they could expand their business operations. The intention behind this was supposedly to help more people buy houses, and it certainly had that effect. The construction industry grew, as did the banking industry grew. The banks, being insured, were able to find creative ways to earn even more money, by bundling mortgages together into derivatives and selling them off, and all sorts of economic things that I really don't bother to understand.

The long and short of it is that they were gambling with other peoples' money, because the government had promised that they wouldn't have to shoulder the full burden of the risk. (In fact, they wouldn't have to shoulder any burden, really, had everything worked out okay.)

When the crisis happened, of course, the banks came to Washington for help. Same with the auto industry (although they got into their problem entirely on their own, from what I know of the situation).

Now that things are getting better, these industries want to get out from under these loans as quickly as possible. They do not want the government to have any part of their gains, even though the government stepped in to help them in the time of trouble. Their goal is to earn a profit, after all.

They want the losses they suffered to be socialized, but they want the gains to be privatized. It just doesn't work, in my opinion, because the two ends of the transaction are inherently linked. If you're going to privatize the gains, then you need to keep the incentive of the losses in place to keep the gambling to a minimum. If you're going to socialize the losses, then there need to be some sort of socialization of the gains, to offset the risk the taxpayers are taking.

Now, what I've seen President Obama do since taking office is trying to reign in both ends of this problem. He's trying to socialize the gains a bit, but also trying to privatize the losses a bit, and both the conservatives and socialists (who I didn't even really know existed anymore!) are fairly cheesed off about this, because they don't agree with his decisions. The fact that he pisses off both extremes is something that I like, actually, so I figure he's doing a good job.

The exact formula of privatization/socialization that is optimal is a perfectly valid and important point of debate, but the libertarians seem to be coming solidly on the side of full privatization, in lockstep with the Republicans. As Brin points out:
The libertarian wing of conservatism ought to be the portion that non-leftist liberals and pragmatic moderates could negotiate with.  All three groups appear to be motivated by a shared set of general goals.  A dream of maximized individual opportunity and freedom.  An aversion to bossy accumulations of undue power. A belief that unleashed human creativity can solve a vast array of problems and that tomorrow could be better as a result.  These commonalities ought to make for lively, good-natured debate over the details, e.g. whether to use the state or laissez-faire or a tuned-markets to solve this or that problem. 

The Socialized Gulf Crisis

One last thought is triggered by this recent Huffington Post article, about how people who are normally very anti-government interference are okay with the idea of the government "bailing out" BP by paying a portion of the oil spill clean-up expenses. Again, they want to socialize the losses, even while they attempted to fully privatize the gains.

Now, I own stock in companies. I'm a believer in the free market and its power to generate wealth. However, if a company I own stock in is responsible for one of the worst man-made natural disasters of my lifetime, then I damn well don't want them to pay me a dividend. (This is why I diversify - to spread this risk out!) I want them to do the right thing and fix it. If that means they go bankrupt, then they go bankrupt, but every cent of the money in that company should go to fixing their mistake first.

Because that's the responsible thing to do, and being responsible is more important than being wealthy. I suppose I agree with Rand Paul's brand of libertarianism in this regard - in a world where everyone were truly a Christian, they'd hopefully do the right thing because they'd know Jesus was very clear on this:

Wealth is pretty darn close to the bottom on the scale of importance in this world. 
Treating people right is pretty high on the scale.
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