A very long response to a typically inaccurate liberal critique of libertarianism.
Libertarians come in many flavors, but I think most of them would agree that in an ideal world, the government would be very small and have limited powers – essentially, the government would control national defense and perhaps adjudicate over property rights disputes (i.e., maintain police and/or the courts). Otherwise, people would be free to engage in whatever activities they wished provided the specific purpose of that activity was to harm a third party.
OK, as a general introduction this is fine, although I’m sure he meant to include the word “not” in that final clause.
Based on conversations with libertarians, I believe negative externalities, or inadvertent harm to third parties is OK. I have yet to have a discussion with a libertarian and come away thinking: now this is a person who views negative externalities as an intrusion on someone else’s private property requiring government intervention to halt. (If I am incorrect about this, I’ll be happy to stand corrected… but it has little effect on the rest of this post.)
He is wrong, and it makes me wonder how many different “flavors” of libertarians he’s actually talked to. Granted that many people calling themselves libertarians are much too cavalier about externalities affecting non-private property, but if we talk about the local oil change shop dumping its used motor-oil in their backyard, you’ll find out just how concerned they are about negative externalities. That is, the principle is implicit in their beliefs, even if they are sometimes unclear on the extension of it. Here are some examples of libertarians discussing this issue. It’s possible, of course, to dispute what is said in those links, but they all show libertarians who reject the idea that negative externalities are OK. Some of them do, however, highlight how simplistic the “requiring government intervention” conclusion is–some externalities are too minor to require intervention, others are actually promoted by current government policy, while some result from simple lack of clearly defined property rights. And because government isn’t a candy machine, sometimes government intervention can actually result in a worse outcome. But I’ll wager you can’t find a libertarian who thinks Kentucky Fried Chicken inadvertently dumping their used grease in my backyard doesn’t give me a basis for getting the government involved (usually through the courts).
Now, one of the side effects of a very small, laissez-faire government is that tax rates will be very low. This means that the accumulation of wealth will be faster for those with a comparative advantage at creating goods and services other people want to buy. (I’m ignoring this effect, which is easy to verify empirically, but then libertarians believe lower taxes result in faster economic growth and I want to focus on their assumptions here.)
Here the author appears not to understand the concept of comparative advantage, or he’d recognize that he’s arguing that the accumulation of wealth will be faster for everyone. Actually, taken literally he’s complaining that people who can’t produce anything other people want to buy won’t get wealthy in a free market economy. Well, yes. And the problem is?
I’m sure what he’s really concerned about, as succeeding paragraphs show, is that the distribution of wealth will ultimately be illegitimate. But he doesn’t define what kind of distribution is illegitimate. But let’s accept his assumption that government shaping of the distribution of wealth is desirable. Then a libertarian can turn his argument around on him simply by saying, “in that system the accumulation of wealth will be faster for those with a comparative advantage at influence government.” What makes that outcome a priori more desirable?
Furthermore, without an inheritance tax or estate tax (I think it is fair to say most, perhaps even all libertarians are against these types of taxes), fortunes would pass on more intact from one generation to the next than we see happening today. In such a world, the accumulation wealth over two or more generations could allow a person or family to accumulate a greater percent of a given area’s wealth than we see happening today.
I can’t get worked up into a righteous indignation against inheritance taxes myself (I’d just tax it all as standard income), but he’s probably right that most libertarians oppose them. But there are several things wrong with this argument. First, he’s claiming that libertarians aren’t dealing satisfactorily with this problem. But to libertarians it’s not a problem. It’s simply not an effective argument to say, “but you’re not dealing with this issue that you see as non-problematic in a way that I find satisfying.” Or to put it another way, “you’re not arguing from my perspective” isn’t a valid critique.
Second, he’s relying on three questionable assumptions that undermine his assumption that inheritances are problematic. First, he assumes that wealth across generations will necessarily keep accumulating. It can, of course, but that’s far from a necessity or certainty. Those who don’t earn something are less likely to value it, so future generations are less likely to value the wealth they’ve been given, and more likely to burn through it. Also, those who have been given too much too early may not develop a good work ethic, and may not be competent to add to the family fortune. Or they may get too greedy and invest in a pyramid scheme, or the latest stock boom, or develop an addiction to faberge eggs. In short, we just can’t predict the future with the kind of certainty that is assumed in this argument.
The second assumption is that the accumulation of wealth across generations is bad. But why? If the children who inherit the wealth don’t, from a philosophical perspective, “deserve” that inheritance, neither in fact does anyone else. And accumulated wealth has often done a hell of a lot of social good. It takes real accumulation of wealth to create Carnegie Libraries, or to found a university, or create a large charitable foundation. Oh, wait…those are examples of billionaires giving away their money instead of just letting their kids inherit it so it can accumulate across generations. Hmm, maybe rich people don’t all act the way he assumes they all do.
The third assumption is that accumulating wealth across generations necessitates accumulating “a greater percent of a given area’s wealth,” which is manifestly, mathematically, untrue. Is it likely that Bill Gates has a larger percentage of the Seattle area’s wealth than James J. Hill had of the Twin Cities’ area’s wealth? And if he does, does it actually matter in terms of the well-being of Seattleites today compared to Minnesotans a century+ ago?
It seems to me that this kind of misunderstanding–the fixed pie fallacy–is one of the most durable foundations for liberal critiques of libertarianism.
But… the libertarian world is one without public infrastructure. So who would build or own the roads in a given area? Well, it won’t be folks who don’t have any money, that much is evident. Presumably those who otherwise have accumulated significant resources… such as a person or a family that controls a sizable piece of the wealth in that area.
Now we move into the realm of the purely silly. Here is a writer who admits up front that there are “many flavors” of libertarianism, but thinks that all of them are opposed to public infrastructure, thus reducing all of them to the most extreme version in which public amenities are wholly absent. In other words, the author is not an honest critic. Perhaps he’s heard of a guy named Penn Jillette, who publicly admits to being a libertarian (“Hello, my name is Penn, and I’m a libertarian.” “Hello, Penn!”), but who nevertheless agrees that government has a role to play in providing infrastructure.
But let’s take the author seriously for a moment. In fact many neighborhoods have home-owners’ associations, which privately provide infrastructure, including roads, snow removal, street lights, even parks. So the issue isn’t that privately provided “quasi public” infrastructure is impossible; the issue is to what extent that scales up. At the point where it doesn’t scale up well, that’s where the break point comes (which may differ for different types of infrastructure). It’s reasonable to argue about where the break point occurs, and reasonable to argue about whether too much private infrastructure (“Stay off our subdivision’s sidewalks unless you’re carrying a 3C/A permit vouched for by a dues-paying resident and signed by the HOA President!”) is a good or bad thing. But to say either that no communal infrastructure would exist in a libertarian world or that all libertarians oppose all public infrastructure is to implicitly admit that however many libertarians he has talked to, he hasn’t actually listened to very many of them.
Now, a lot of types of infrastructure, such as roads, electric grids, and the like, have significant first mover advantages. There may be a lot of traffic on a road from A to B, or an electric grid serving the area, and monopoly rents could easily be extracted. If a second mover built a duplicate road or electric grid, it would harm the first mover… but it also wouldn’t happen, because the second mover knows the price war would make it impossible for it to profit as well.
This, by the way, isn’t pie in the sky theorizing or guesswork. We’ve seen precisely that in the real world. For example, in the years following the 1996 Telecom Act, incumbent phone companies were deathly afraid that their network would be duplicated… and except for a few BLECs in big cities (most of which promptly went under even so) there was no replication of the last mile. Similarly, you don’t see replication of the last mile in the electricity industry, which I mention because when it comes to deregulation, the electricity industry is where telecom was in the late 1990s. (Yes, it is not a perfect analogy, but electricity and phone calls aren’t the same thing.)
Yes, this can happen, and it’s why I have no patience with the type of libertarian who thinks the market solves every single imaginable problem and never has failures except when government gets involved. They are as ignorant about economics as the average liberal is, which is why both are so wrong, although they are wrong in different ways. But there is a great irony in using telecom as the example here, because the development of competition in telecom was held back for years by government intervention to protect, rather than prevent monopolies, and once we eliminated that foolish policy we had a boom in technology that wiped away the problem of it being inefficient to string wires the last mile by getting rid of the need for wires altogether.
In the case of an electric grid, the problem still seems to exist, but does that mean the problem is to keep our monopolies and just struggle to control their operations via regulation? Or is the solution to set up a competitive system in which power producers enter into contracts with end-users and dump their system into a common grid they all pay to maintain? That might require a government agency to manage or regulate that common grid (or maybe not; we don’t really know yet), but it would still be a system that utilizes the power of competition to benefit consumers. That is, it would be, if not ideally libertarian, at least more libertarian than what we have at present.
The standard response I’ve seen to this is “look at Enron, it didn’t work.” But that response is wrong on several counts. First, Enron was not the hole of the system. Second, experiments in energy markets are still on-going. Third, this “if at first it fails, totally give up,” argument never seems to apply to government policy–somehow the concept that “we’re trying something new, there’s good theory to support it, but we may have to tinker for a while before we figure it out” never seems to be acceptable when it comes to markets (although it’s how all businesses operate), but is always acceptable when it comes to government (even though most governments have a harder time tinkering than most businesses do).
We do, occasionally, see the private provision of toll roads, but usually after the owner of that toll road extracts a promise from the government to reduce maintenance of any competing publicly owned road. Which means… in any given area, there isn’t going to be competition in the provision of roads and other infrastructure.
Note the empirical claim here–that private toll road operators “usually” extracts a promise from the government to reduce maintenance of competing public roads. The author provides no citation or example; we’re just supposed to take his word for this claim. Of course government has a commitment problem, so it’s not clear why a private firm would trust a government’s promise when it’s prepared to commit literally billions of dollars to a project. And of course the commitment problem stems from the inevitable complaints users of the public road, particularly those who live along it, would have. Few things motivate people to complain to their local officials like potholes.
But beyond that theoretical problem, there are at least three high profile private toll roads in the U.S. now, the Chicago Skyway, the Indiana Toll Road (both public built but privatized via lease in recent years) and California’s State Route 91 Expressway*. Surely there should be some evidence of neglect of competing roads we could point to here? Across Indiana the competing road is U.S. 20. I drive the Eastern portion of that road occasionally, just to avoid the toll road, and I can personally vouch that it’s in fine shape. In fact, Indiana used the money from the toll-road lease to become the only state in the country with a fully-funded road building/repair program, so U.S. 20 looks to be in good shape for a long time to come. In Chicago you can take 20 (if you want to drive through city congestion on a surface street) or you can take the roundabout way on Interstate 94. I’ve never taken 20 there, but I have taken 94 and it’s in as good a shape as most freeways. As for the State Route 91 Expressway in California, it’s a private toll road built into the median strip of the existing SR 91 freeway, and was built to relieve congestion on that route. The idea that the state might let the 91 go to pot to satisfy the toll operators requires more cynicism than sense.
The US Public Interest Research Group, a liberal organization, published a critique of privatized roads in 2009. They don’t mention any private-operator demands for diminished maintenance on competing routes, although they do note “non-compete” clauses, such as Indiana agreeing not to build a four-lane divided highway within 10 miles of the toll road and Cal Trans agreeing not to upgrade the capacity of the freeway along which Route 91 runs. That’s a pretty weak complaint, to be sure, since the reason Indiana leased the toll road was because it was losing money on it, so we can be doubtful of their eagerness to build a new one, and because anyone who looks at a map of Indiana can see how easy it would be for the state to build–if it became necessary–a freeway from Fort Wayne to Chicago that was 11 miles from the toll road and served as much or more of the state’s population than the toll road does. In fact most of that hypothetical road already exists as U.S. 30, just in non-limited access form, and would only need a little re-routing on its western end to stay just over 10 miles from the toll road. And the purpose of Route 91 in California was to be the capacity upgrade.
But even more important than all this, this complaint actually constitutes little more than a critique of governments’ capacity to negotiate contracts. If the argument is, “we need to keep this publicly controlled because the government is too incompetent to negotiate a good contract,” it’s time to do some serious thinking about why you place such faith in government. Fortunately, the evidence shows that governments can negotiate good contracts, and the more frequently these types of deals occur, the more experience they have to draw on.
This is important for a combination of two reasons. The first is that a monopoly extracts monopoly rents. Monopoly rents, of course, will increase and speed the process by which wealth is concentrated, and, as most libertarians will tell you, monopoly rents create market inefficiencies.
This is true, but those private toll-roads are not monopolies, plain and simple. For each there are real alternatives, not just alternative roads, but alternative transit options. A real-world example is illustrative here. Some years back the state of Ohio reduced truck speeds and raised truck tolls on its tollway. The result was that many trucks took to the non-limited access roads paralleling the toll road’s route, creating much more dangerous conditions on those roads, which finally persuaded the state to rescind those policies. The state wasn’t even attempting to squeeze the trucks for monopoly rents, just to get them to cover the share of damage they actually do to the road, but nevertheless they still managed to price themselves out of the truck market. And of course if the state had somehow managed to ban those trucks from the other roads, they probably would have managed to just shift much of the freight to rail.
What we see here is the author’s failure to recognize that consumers are rarely captive and non-responsive economic actors. They are autonomous agents who think for themselves and try to find ways to minimize their costs.
But movie theaters run their own concession stands, and if you want to set up a snack bar in a Wal-Mart, you better expect to turn over most of your profits to Wal-Mart. Unless there are rules preventing it (not likely in a libertarian paradise), the owner of the infrastructure calls the shots, deciding who can and who cannot do business.
And this is a problem why? Nobody is required to go to the movie theater, and in fact if you’re clever it’s not hard to sneak some snacks past the ushers. And Wal Mart is not the only place you can set up a snack stand. Of course it’s a great place to set one up because Wal Mart is so great at attracting large numbers of people, so the person who wants to set up a snack stand there without paying a bundle to Wal Mart is simply trying to free ride on Wal Mart’s marketing efforts (rather than set up elsewhere and pay for marketing out of their own pocket).
The author’s complaint here simply makes no sense at all unless the case is that consumers are truly captive to that infrastructure, and he has not actually demonstrated any case in which they are.
But the second problem with a monopoly in roads and other infrastructure is far more important. It means, simply put, there is no voting with one’s feet if the road owner chooses to prevent it.
“No voting with one’s feet if the road owner chooses to prevent it”? The author here is talking about serious levels of coercion, a virtual slavery. Just how in the world does he think the private consortium running the Indiana Toll Road could possibly choose to prevent me from voting with my feet (wheels?); that is, from taking U.S. 20 instead of the Toll Road? Can the author point to even one example of a monopolist who has actually prevented people from voting with their feet that is not in fact a government? I cannot think of any, and yet the author is hanging his argument on this point. If he’s saying that we’ll be encapsulated in a web of private roads, and that the owners of those roads will charge us exorbitant fees to leave, well they’d have to simply charge exorbitant fees, because once on them it will be hard to keep people from simply leaving–so to keep people from leaving they’d have to charge so much that people would never use the roads, which means they’d receive no income from this exorbitant fees, which means they’d never charge such a high rate. Posing extreme and unlikely hypotheticals is one of the weakest forms of critique.
(Of course, the next region over might be run the same way anyhow.) So if you don’t like the way the people that own the roads and the markets and the apartment you rent do business, you can’t exactly up and leave without using their road or otherwise cutting across their land. And if they don’t let you do it, well, you’re breaking the law… and the Pinkertons could easily prevent you from doing that. The average person, the person not born into resources, could be left with one option to full cooperation – loss of shelter, food, and even membership in society.
This kind of argument is precisely equivalent to the person who looks at a public park and begins to explain how wrong communism is. The author is no longer arguing with real libertarians, but with the liberals’ favorite strawman version of libertarianism.
Now, if this sounds unrealistically dystopian to you, remember that it took far less coercion than that to keep people tied to Company Towns not a hundred years ago in this country. The Company Towns did not own the roads or the land once you were out of town, the only chains were financial.
That does sound terribly scary, doesn’t it? Because the world today is just like the world of a century ago, right? Or the world of the libertarian a hundred years hence would be just like the world of a hundred years ago. Or, something terrible that we can’t precisely explain how it would come about. What caused the decline of the company town, of course, was increasing affluence, something those evil corporations determined to enslave people weren’t able to prevent in the long term.
But of course this is all nonsense anyway, because you don’t find serious libertarians arguing for an end to all public infrastructure. They just argue for privatizing what can efficiently be privatized, finding creative ways to privately fund what can’t actually be privatized, and keeping the rest as public as necessary.
Why doesn’t the author go the whole way with his fantasy, and argue that libertarians–all of the many flavors of them–advocate privatization of the police and the military? Because at that point he might realize that in fact libertarians aren’t anarchists who argue for no government at all, and then he might actually have to think seriously about where libertarians draw the line, which might require reading what thoughtful libertarians say, and actually listening to libertarians of some of those flavors he’s so far ignored. For example, he might do well to read what Charles Murray (a man I’m not accustomed to citing) says about public goods.
If he did that, the author might realize he has to deal with some actual nuance in libertarian thought, rather than bravely attacking a one-dimensional fiction. In other words, he might find he has to do some actual homework instead of just talking out of his ass. And he says he’s happy to stand corrected, so he should be delighted to do this. But I’m not holding my breath.
*Route 91 has a complex history, which is a bit much to go into in this overly long post. Look up the Wikipedia page on it to get more detail. In a nutshell, it was built with private funds for Cal Trans, which then leased it back to the company that built it. It was then purchased from the state by the Orange County Transportation Authority, which now owns it, but it is still managed by a private firm.