Blaming Liberty for the State’s Depredations

Whenever government failure destroys lives and wealth, we can easily become frustrated as we see the crisis blamed on freedom itself. Gun control fails to stop a massacre, and the freedom to own guns is attacked. Narco-terrorism claims the lives of many, and we hear the problem is not enough law enforcement against drugs. Destructive intervention follows destructive intervention, always in the name of erasing whatever allegedly dysfunctional liberty remains.

Jacob Weisberg has an unbelievably asinine article blaming the Wall Street collapses on libertarianism. We who believe in individual liberty supposedly brought on this recession. Specifically, the country has "narrowly avoided a global depression and is mercifully pointed toward merely the worst recession in a long while. This is thanks to a global economic meltdown made possible by libertarian ideas." Thus the collapse signals "The End of Libertarianism."

It is hard to grasp that someone could actually believe this. At first, we might be tempted to assume the author of the above nonsense is being deeply and deliberately dishonest. But perhaps sheer intellectual error could suffice to explain the problem.

Surely, libertarians have not exactly been in charge of the state. Indeed, it would be a contradiction to say that we have – insofar as the state is libertarian, it ceases to be a state. Yet somehow, America’s $3-trillion federal government – the largest state in our planet’s history – is associated with free enterprise in the minds of confused pundits, left and right. But every single dollar spent by that government is of course a dollar that has nothing to do with free enterprise.

Anyone under fifty who went to public school probably remembers this lesson: We used to have laissez-faire, and it caused great inequality, poor working conditions and bank panics, so we had the Progressive Era and the creation of the Federal Reserve. But we still had too much economic liberty and it (not the Federal Reserve) brought on a Stock Market bubble that burst in 1929, so we had the New Deal, the FDIC, national economic planning and the like. While that didn’t quite end the Depression then (perhaps World War II did?), it did guarantee that we would never have one again. Thanks to government interventions from Teddy and Franklin Roosevelt to Lyndon Johnson, our modern economy will never have the troubles it did in the 1930s. Central banking and millions of pages of federal regulation keep this economy afloat and comfortably growing.

Now all of a sudden the statists claim we are having the same kinds of troubles, and once again it’s all the free market’s fault – the same free market they said no longer exists, due to decades of intervention. It’s the freedom to buy and sell, to contract with one another, to exchange within a framework of free association, free pricing and property rights that has, once again, brought on economic calamity. Not the century of interventions that they said have guaranteed no such catastrophe would ever again happen. No, the remaining pockets of liberty are at fault.

Of course, we libertarians have our own ideas about what went wrong. Weisberg brushes off libertarian critiques of the Community Reinvestment Act * and Fannie Mae/Freddie Mac – two examples of government intervention that helped bring on this mess.

To such critiques, Weisberg has a very typical response:

Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, [sic] libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.

Indeed, one problem with a mixed economy is that if you do not logically examine the theoretical arguments for and against economic freedom – if you rely only on empiricism – you can never determine what is the cause or solution to any large problem. Both libertarianism and pure socialism are indeed non-falsifiable, in the sense that neither has been tested 100%. But empiricism is not the only means by which to find the truth.

Theory is crucial. Theory is what allows one to come up with ways to explain the world as he is perceiving it. Much can be learned about a theory through a priori reasoning. When someone says the biggest government in the world represents the absence of government, or that politicians and bureaucrats made the wrong decisions because they had a "libertarian" ideology that was skeptical of their ability to make the right decisions, you know something doesn’t add up. When they associate Bush's government with laissez-faire, when it has been much less so even than Clinton's, and blame its non-existent deregulation, you know their argument is inherently incoherent.

Those who have embraced sound free-market economics have been warning about the housing bubble, the impending problems with the dollar, and the precarious nature of our financial system for a long time. The only libertarian in Congress, Ron Paul, said this more than five years ago on the House floor:

If Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. . . .

. . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.

Ron Paul, like all principled libertarians, has also been very critical of the Federal Reserve. He has taken on Alan Greenspan and then Ben Bernanke for years. In the presidential debates, he was considered a fringe figure for his prescient warnings about economic bubbles and the coming systematic problems with Fed inflation. When he said our monetary system was basing its money and credit on nothing, the mainstreamers chuckled. So now the mainstream is catching on, we libertarians are criticized for having been right? For having not been in power?

In fact, Weisberg seems to ignore how incoherent it is to blame the Federal Reserve’s economic meddling on libertarianism. Indeed, he faults Greenspan for believing in "market fundamentalism," and being someone who "openly calls himself a libertarian."

Can the author not see the pure absurdity of what he’s implying? No libertarian could long be the Fed chairman, for the position is intrinsically unjust and the agency is at constant war with economic liberty. It is the chief counterfeiting and looting institution within the U.S. government. You can no more be a libertarian Fed chief than a libertarian drug czar.

Libertarians have considered the Fed one of our greatest enemies for a long time – forty-five years ago, Murray Rothbard explained how it brings on the business cycle and how, in particular, it led to the market crash of ’29. Ron Paul and many writers at this site, the most widely read libertarian opinion site in the world, have been warning about the Fed’s real estate bubble for years. See especially Mark Thornton, and then come back to us and blame the current downturn on our ideas.

But Weisberg really shows his hand with this remarkable statement: "As with the government failures that made 9/11 possible, neglecting to prevent the crash of '08 was a sin of omission."

A sin of omission? Excuse me?

It was not a sin of government "omission" that funded radical Islamists in Afghanistan, waged a brutal war on Iraq in the early 90s that left U.S. troops on Muslim holy land and imposed sanctions that killed hundreds of thousands of innocent Iraqis, and gave one-sided support to Israel in its conflict with the Palestinians. Say what you will about the morality of these acts, but U.S. foreign policy in the Middle East has been a continuous string of sins of commission since 1953, when a CIA-backed coup overthrew a democratically elected Iranian leader and replaced him with the Shah. U.S. foreign policy was anything but inactive before 9/11, and the terrorists sure don’t attack Americans because their government doesn’t go to war or spy on people. See Robert Pape and Michael Scheuer on why they attack us: Ron Paul and the libertarians have also been warning about the consequences of foreign intervention in the form of terrorism, well before 9/11.

What we really see in Weisberg’s approach toward economic collapse and 9/11, both of which he blames on not enough government, is that he, like all who see the world in this way, is no less ideological than we are. He is not bold enough to be a Marxist, nor is he one of us. But he is no less committed to ideas than we are. For him, it is the idea of the managerial, modern, democratic state as protector, guarantor of national safety, stabilizer of the economy. So when the economy flops, revealing the colossal folly of five generations of government intervention, he must blame freedom and say we need the state to do more. And when terrorists attack, showing the utter disaster of trusting an imperialist trillion-dollar empire and security state to keep us safe at home from anyone determined to hijack a plane and cause mayhem, it must be because the government simply did not do enough. It is this mentality that is truly utopian, for it seeks to create a world though state planning and violence that is somehow more equal, more rational, more stable and perfect than what people can do through peaceful and voluntary cooperation and honest competition. Whenever anything goes wrong, no matter how big and active the state, the answer is always more state power.

When statists attack libertarianism for their own disasters, we need not take it personally. They are not attacking the few libertarians with some political pull like Ron Paul. They are not attacking libertarians with real government power because we reject such power and none of us wield any. They are instead attacking our ideas – freedom itself – and defending the state. It is an act of desperation, actually. They see the state under attack, their beloved bailout distrusted by the masses, and so they strike at us, the principled minority, because they fear we have the answers people will seek when their cherished state eventually fails to instill confidence anymore. We, who unlike the statists on the left and right can honestly wash our hands of the disasters on Wall Street, war and terrorism, are their scapegoat in a world gone wrong under their management.

This is not the end of libertarianism. It is only the beginning. And we have only begun to fight.

*According the Weisberg's Slate, criticism of CRA "blames the credit crisis on poor minority homeowners" – not just on the policy, but on the poor themselves. Yet Weisberg seems to favor the bailout, a wholesale looting of the poor to prop up the rich. Fair-weather egalitarianism, indeed.

October 20, 2008

Anthony Gregory [send him mail] is a writer and musician who lives in Berkeley, California. He is a research analyst at the Independent Institute. See his webpage for more articles and personal information.

Anthony Gregory Archives

Back to LewRockwell.com Home Page