Part 3: Libertarianism
As I have alluded to so far with great frequency, I see libertarianism as the ethically correct approach to politics, and I have established its basic principle of freedom. But exactly what is it, what is it not, and who supports it?
In its most basic form, libertarianism is, perhaps unsurprisingly by this point, a belief that all of the freedoms of people should be respected to the greatest viable extent possible. It is therefore the socially and economically free corner of the political compass, and consequently the only political ideology to truly embrace the claim that ‘all human beings are born free’.
It is a belief that all people should be treated equally by the government – that is, given the same standing before legal systems and within any institutions which must exist, such as education. It is completely non-discriminatory, respecting absolutely the freedom of all individuals so long as they themselves do not infringe upon the freedoms of others.
The ‘freedoms of others’ is clearly quite an ambiguous concept. There are obvious answers – people have the right to life and independent choices and to property (without which nobody could live comfortably or even within a functioning economy, since there could be no business confidence without stable capital, and moreover purpose of economic transactions would be lost since nothing would need to be bought or sold). Yet, there is no definitive boundary – for example, does someone have the right not be verbally insulted, or is the limit their physical abuse? Such borders are difficult to define, however as a general rule it would seem that non-consensual and deliberate physical contact would be a reasonable transcendence of personal freedom, whereas the freedom of speech lies with the individual.
Consider, then, the playing of loud music in a public space – do people have the right not to be bothered by it, or does the perpetrator have the right to proceed. Looked at in principle, this person is in no way directly interfering or harming the people who are affected by the actions at hand. However, it is quite clear that under some circumstances, such as late at night in an suburban area, that the actions would be intolerable. So while he exercises his freedom, there are the reasonable limits which must be imposed. Again a line has to be drawn somewhere – indeed arbitrarily, which I have previously suggested to be problematic, though given the moral soundness of libertarianism as a whole, the approximation of moral correctness which may occur under circumstances such as this still brings us closer to absolute moral correctness, in addition to the fact that there is no absolute philosophical solution to a matter such as this, while other political ideologies can be labelled as categorically wrong. Nevertheless, this introduces the concept of necessity, which I will develop later, and consists of the necessary compromises required for a functional society in which prosperity and comfort is possible while we continue to work towards absolute ideals.
The government must remain as small as it can do so reasonably under the libertarian ideal, since it is in no way exempt from the moral requirement to respect the social and economic rights of others; social rights such as of faith, to live freely of persecution and to express oneself freely are typically obvious to western observers. Economic rights, the ethical nature of which seems so often overlooked, are violated through any interference with the free and willing process of legal economic transactions, as previously established, which can include taxation, price control or the nationalisation of industries which could otherwise be private. While the likes of welfare payments, subsidies or government investment in public services (aside from those which cannot be provided under free markets, including much infrastructure) would not on their own be wrong – they do help people after all (though this is not to be confused with an overall welfare gain) – they require the raising of funds by government which does, in turn, require the economic interference which is now established to be wrong. Hence, the more the government engages in these activities, and hence the larger it is, the greater its violation.
In contemporary political debate, a libertarian will come down on the side of choice; ultimately, by the incident of birth alone, we do not, as people, belong to any other person or institution, governmental, religious or otherwise because, after all, ‘all human beings are born free’. This, the most fundamental principle of the United Nations’ own interpretation of the basic entitlements of all the people of the world, cannot be conformed to if, as is invariably the case, the personal choices, social and economic, which do not infringe upon the rights of others, are not fully respected by governments.
However, libertarians are not those who reject government outright – that is the realm of the anarchist – but rather accept that is necessary and advocate its limitation to its basic functions only (the likes of defence, public safety and security, legal systems, education and infrastructure, with some cases to be made for additional areas, in particular ‘safety net’ social security systems, but in all cases with the least cost and public interference that can be achieved.
They are not uncompassionate individuals. Everything I have advocated so far has been because I see it as ethical. Suffering and inequality are bad things, absolutely, and libertarians bar the most radical will support the prevention of the most severe instances of these, but will consider the ethical nature of entitlement foremost, while possibly recognising the long term welfare benefits to all people of the practice of neoliberalist economic policy (though I will not claim this to be true with certainty).
Additionally, the vast majority are not, for want of a better expression, ‘nutcases’. Many may associate libertarianism with drug legalisation (which is largely credible, since it is a personal decision and freedom in question, though still a matter to debate), gun liberties (which I will shortly make a case against), and the reintroduction of the gold standard (which has little to do with the core principles of libertarianism and is merely an outlying idea which happens to be held by some libertarians). The point is, and which I hope I have so far strongly expressed, is that it is not necessarily a blind aspiration for greater freedoms, but rather something which can very much be rationalised and justified, and indeed justified above any other set of ideals.
As for its advocates, past and present, there are of course libertarian parties in their own rights – the US based Libertarian Party is particularly notable, while in the UK a lower profile counterpart still does exist. Many leaders of the past have demonstrated libertarian-like attributes at least, for example Reagan, and maybe even Thatcher, whose advocacy for fiscal conservatism and small government in general aligns with libertarian ideals even if they did not always act in such ways, particularly concerning social policy. Nevertheless they fought for their ideal of a lesser role of government within society, whilst recognising necessity when it presented itself – as was inevitable in their Cold War environment, resulting in initiatives such as Reagans ‘Star Wars’ programme (the Strategic Defence Initiative) despite the need for taxation to fund such actions. As I will discuss later, such willingness to do what is perceived to be necessary remains a fundamental element of libertarianism, and perhaps all that distinguishes it from anarchism. Reagan himself claimed that ‘the very heart and soul of conservatism is libertarianism’, something with which his own principles align, though is surely inapplicable to some of the less socially-accepting among that conservative groups.
Additionally, legendary economist Milton Friedman was a self-proclaimed libertarian, and advisor to both Reagan and Thatcher. His criticisms of restricted markets were frequent, matched perhaps only by his criticisms of government itself. Then again, we don’t all have to be monetarists to be libertarians; whatever anyone believes ‘works’ in economics can be incorporated into a libertarian agenda, so long actions respect to the greatest possible degree the personal freedoms of people and violates them only when it is clearly and absolutely necessary for a welfare gain across society (certainly from the perspective of the deontological school of thought which does not assert, as do the consequentialists, that freedom is always practically beneficial).
Perhaps Gary Johnson, the US Libertarian Party nominee in 2012 and 2016 is right in saying that most people ‘just don’t know’ that ‘they’re libertarian’ (David, 2016). After all, most people would agree that ‘all human beings are born free’, and would refer to the ‘liberties’ of the western world with pride. These are the basic foundations of libertarianism, and when followed through logically they can only come to that conclusion. What people must now understand is that it is not an ideology which calls for borderline-anarchism, easy access to drugs for all and an ever increasing divide between the rich and the poor, but rather one which can be interpreted as a guide for solutions to practical real-world issues while seeking the most justified outcomes.
The Role of Education
The first role of education in the promotion of these beliefs is, as I suggested when criticising the political spectrum, is to teach politics in a manner which is more intelligent and challenges the stereotypes which seem to have become fixed in our society. It should not just teach the meanings of terms which circulate on the media, but culture a critical and considered approach to them, or else we will remain stuck in political duopolies; a contest between the stereotypes of left and right to which individuals will blindly assign themselves based on identification with their rhetoric or, as is perhaps too often the case, personal financial situations rather than their own ideals and morals.
Teaching should also stimulate a challenge to simplistic thinking. For example, many who fail to think deeply about the ethical implications of their beliefs may take forth the very basic and innocent notion that sharing is good which they learned in kindergarten, and as a consequence vote for our modern socialist parties. Of course sharing is good, but it seems, to me at least, that people take these simplistic instincts and use them as the basis to claim that all people should be forcefully subjected to a system for which it forms the basis, with no regard for the implications for personal freedom. Furthermore, people should all be able to consider the long-term, which seems simple, but one need only recall the peak of the Greek debt crisis to see how a people so stubbornly self-interested in the short term can support (in this case anti-austerity) measures which would so obviously help the government move towards a more sustainable future without more such problems. People fail to consider the long-term gains of the policies which so happen to be those which do not provide them with better services or welfare provisions in the short term, and as a consequence all of society is worse off in the future, as I will develop in my next section. Basic critical thinking capacity, provided via education, is all that is necessary to understand this.
However, education has a much more fundamental role within the execution of the libertarian ideal. Education is doubtlessly a responsibility of government which cannot be ignored – even if an effective and competitive private system was viable, it would exclude the very poorest of society and thus result in unreasonable class rigidity. And as long as there is government provided education, government can influence its content without any further violation of rights, given that there is no way for such content to come naturally and hence must be determined at some level.
Simultaneously, it constitutes a quite clear violation of personal rights to dictate via law what people can think and do. The problem with this is that it leaves significant potential for discrimination and discriminatory actions, say in the workplace. The equality of all people is a vital component of libertarianism, but that doesn’t give the government the right to independently determine what can be done by the likes of private employers, who as the owners of their own capital should have the rights to use it, or have it used, however and by whomever they please.
Consequently, the key place where those in government holding libertarian ideals can promote the concept of universal equality and enable it to impact people when their minds will be open to ideas, especially if the education system is sufficiently strong to enable them to rationalise this, is within the education system. This therefore can reasonably, and must for practical reasons, be taught within our schools to those of young age.
This doesn’t mean that the government can never intervene in matters of unwarranted discrimination, if there is a blatant and unreasonable use of power to subordinate and damage the wellbeing of minorities, women and others – again, this is part of the separation between libertarianism and anarchism. Nobody, including these people, have a fundamental entitlement to economic gain (and so any intervention should be minimal), however it is a matter of undeniable truth that these people should suffer no disadvantage because of their circumstances of birth, which in no way inhibits their ability to work as productively as those who do not suffer like discrimination.
The application of any such intervention must be cautious. Take sports, for example, where income equality is an especially contentious issue – the output of male and female athletes cannot be said to be equally valuable in most cases, because this value is determined by the free-market consumers who will choose to watch one over the other, exercising their basic rights in the process. From this example the case of discrimination may be said to be credible when the value of the output is equal to the otherwise ignorant consumer. This in no way means that women are considered of any less status, but are rather treated on equal terms and opportunity within a free market. Likewise, discrimination does not occur if someone chooses to hire only those who are most qualified for particular work. It is an unfortunate truth that many minorities, through historical circumstance, have been confined to lower-income areas where education may not be so rigorous. Nevertheless, this is something to overcome with time, through the equal provision of education and through the removal, through education of all people, of any racial disadvantages which may inhibit social mobility for certain individuals.
A final element relates to the next section, on neoliberalist economics. Specifically, an education which focusses on the skills which enable people to be occupationally mobile is required. Without this, dynamic and ever-advancing economies are more difficult to achieve, and instead people become structurally unemployed and eventually impoverished when their low-skill work no longer yields enough value to society for it to support that industry. In order to minimise the potential or extent of the need for government intervention it is necessary to implement an advanced, skills based curriculum which enables its participants to move well beyond the most menial of manual labour and into higher-skill, more productive work which produces higher material living standards for all people.
Neoliberalism refers to the economic ideas which emerged as a major force in the 1970s and 1980s with the likes of Hayek and Freidman, which were implemented most seriously under Reagan and Thatcher, both of whom received advice from Friedman in particular. The legacy of the resurgence of these ideas was evident in its dominance of the economic elite and deregulating policies up to present, though its prestige has been particularly harmed by the financial crash, itself likely caused by deregulation in the name of efficiency. The rationale is simple – markets are the most efficient media through which to allocate resources, and through deregulation and increasing the financial autonomy of individual economic agents the wellbeing of people can be maximised and growth can occur most rapidly and thus increase the wealth of all people. It seems a natural fit to libertarianism in its respect for individual choice, and as mentioned Friedman was a particularly notable proponent of libertarianism, himself drawing close links between economic and other freedoms in his book Capitalism and Freedom though in a slightly different way to that which I have used so far.
In spite of this, there are many different schools of libertarian thought, though in this context those which I see as most fundamental are: consequentialist libertatianism, which believes that the pursuit of libertarian policies best serves the interests of people because they are always better off and better able to serve their own demands when their independence is maximised, and; deontological libertarianism, which promotes libertarianism because it is ethically correct. I regard myself principally as a deontological libertarian, for which I have so far presented my reasoning, however as I see it this school needn’t be tied to a specific line of economic thought – it accepts that what is right in terms of the means of government may not always produce the best economic outcomes in terms of the material wealth of people. Though the means may be an important factor, we can never truly separate the ideas of outcome and morality. Hence, a deontological libertarian may conclude that the most ethical way in which to operate government is to strike a balance between the two matters, since as I will discuss compromise is always essential in reaching the best outcomes for all people. So, whether a favourable economic approach does in fact exist must then be considered.
The favourability of free markets in theory is highly logical. Markets are undeniably essential to the functioning of economies – their attempted replacement with central command was why the Soviets could never attain comparable welfare to the Americans during the Cold War, and why their economy was susceptible to collapse into a more natural system in 1991; China, the ‘communist’ leader of today was only able to become an economic power after Mao’s death by gradually liberalising markets (Harford, 2007, p. 277-280) and allowing demand to determine output. This simple mechanism enables consumers to receive what they want in the context of the macro economy. Prices ration the resources inputted into the products which they represent, and ultimately consumer preferences are reflected in final products. If they perceive more utility from a product they will purchase more; if they gain less utility its they will not buy it, and so businesses producing insufficiently valuable output fail and so the composition of output will tend towards that which is seen as most valuable; as resources are scare when not enough of a product can be produced prices rise to ration the use of these resources, and if these resources are demanded in other products the competition for these resources will also cause price rises to ration them, balancing output theoretically at is most favourable composition.
It is evident that inequality results from freely operating markets in terms of material outcomes, though what is often overlooked, aside from the established and crucial distinction between equality of opportunity and equality of outcome, is that inequality itself in no way causes any direct harm. Though it is of course not preferable, the mere existence of inequality is acceptable as long as maximum growth in material wellbeing is produced. If by intervening in markets through taxes, subsidies, regulations and controls in the interests of equal outcomes slows the pace of growth, its effect is adverse. Surely it is people’s material status in absolute terms which really affects their day-to-day wellbeing, and as a consequence it is wrong to make ‘amendments’ in the short term to elevate the material wealth of those on the lowest incomes when it will only mean that in the future all people will be worse off than they otherwise would have been, including these very same people who could be gaining wealth at a faster rate at some point in the future when they reach the level of wealth which they could otherwise achieve through economically inhibitive measures in the present. It is short-term self-interest causing people to want to accelerate the improvement in their conditions, overlooking the fact that they themselves would otherwise be better off in the long term. It is easy to dismiss this as an abstract case which overlooks the ultimate stagnation of an exploited working class, but one need only look into the near-past to understand that conditions for all people have improved massively. For instance, even those on the lowest incomes in the western world have access to technologies such as computers and household appliances which save them huge amounts of work and hardship and which have only become affordable not because of the likes of welfare payments but rather because economic progress and demand has enabled them to be produced efficiently and cheaply, as accelerated by freer markets. Only a few decades ago indoor toilets may have been inaccessible to those on the lowest incomes, yet now we take it for granted that this is an essential for life. Maybe the government had to help the long-term unemployed purchase that toilet (more on this shortly), but better that it be made substantially cheaper and more accessible through markets than be perpetually out of the reach of a larger number of people. Aside from this there is strong evidence that social mobility is underestimated anyway (Snowdon, 2015, p. 168-184).
The other side of inequality is of course wealth – but since as discussed wealth can only be vested in people by others and consequently those who earn money must have produced value for others at least equal to that which they have earned. It is certainly wrong to arbitrarily vilify these people, and if they did not exist we would be worse off because we wouldn’t have gained the value surplus which we must have perceived in making transactions which made certain individuals wealthy.
Keynes argues that government intervention can be justified in order to maintain full employment (Skidelsky, 2010, p. 124-126), and modern supporters point to unrealistic assumptions used in mathematics concerning free market economics, but the principles of the free market nevertheless seem sound. Though they claim this warrants borrowing for government spending when the government underperforms, it can be questioned whether such spending boosts overall economic activity given the crowding out of private spending, which typically produces greater welfare anyway since value surplus is itself an issue of personal perception, due to the rise in commercial interest rates which it causes, encouraging saving and deterring borrowing for consumption and investment both of which themselves constitute economic output.
It is easy to come across evidence claiming our post-war era of Keynesian conformity was our most successful with rates of growth in the Bretton-Woods era generally far exceeding those of the subsequent and continuing period of free markets (Skidelsky, p. 121-122) arguably initiated by Nixon in the ‘70s. Though most would acknowledge that the aftermath of World War Two constituted exceptional circumstances, I have not seen those pointing to this recognising the influence of the changing structure of the economy, despite using this to explain other phenomena, such as in Robert Skidelsky’s ‘Keynes: The Return of the Master’. With the growth in the service sector which is an inevitable component of economic development under three-sector theory gains in productivity can be harder to obtain since they no longer depend on processes which can more easily be made more efficient. Failure to account for this can result in a misleading case for Keynesian economics based on past record while in reality it is completely unfair to compare economic outcomes across significant time periods. Though some claim that expectations and sources of growth or absence thereof can be quantified (French, 1997, p. 211) this contradicts Skidelsky’s own attempts to discredit such economic mathematics based on its flawed assumptions (2010, p. 29-51).
So I personally remain unconvinced that we are worse off in a more liberalised economic world as some seem to reject. However it is not as though we have experienced any remarkable growth figures since the 70s either, certainly within the Anglo-American realm which has been at the forefront. It perhaps means that the outcomes of society are more justified, as presented above which I would consider adequate to warrant the maintenance of at least a relatively liberal system. But let us for now focus on a purely practical issue; Ha-Joon Chang in 23 Things They Don’t Tell You about Capitalism makes the assertion through evidence that more controlled economies can have just as much growth as liberal ones, as with the Scandinavian welfare states and in some cases can grow dramatically as in much of East Asia, though these examples are less applicable to the developed world and its tertiary-heavy (service based) sectoral structure. While Chang’s facts and overall credibility have been challenged by the IEA (Snowdon, 2010), this seems easily obtainable data and thus perfectly credible. Meanwhile he and others point to the failures of a more liberalised system to live up to its promises of low unemployment and more rapid growth, and yet more point to inequality as our greatest issue, which though I have argued to be tolerable it is of course not preferable when severe. I am not yet a fully trained economist and so there will likely be variables for which I cannot account, however it is certainly worth reconsidering some of the legislation which we have that is seemingly off limits to negotiation as after all, the likes of the IEA and Milton Friedman present a case which seems simple and ideal, as well as consistent with the ethical values I have so far expressed. They assert: that markets will deliver the maximum utility to consumers because their demand and the price mechanism will adjust such that they receive only what maximises their perceived utility; government interference in these markets will disrupt this and so result in inferior outcomes for people, and that unnecessary spending will simply crowd out consumer spending which is preferable as only consumers themselves know how their personal perceived utility is maximised and; of course much more in much more detail which I can’t express fully here. However, there are two specific practical issues which I would like to look at – the minimum wage, and medical licensure, the latter being a modernised summary of Friedman’s case in Capitalism and Freedom. Again, I can make no concrete claims, however it is should be considered whether these government interventions are simply retardants to greater wealth and equality for all.
The minimum wage is generally highly regarded by all political parties in the UK, and as an easy concept to sell to short-sighted voters this is unsurprising. But this creates a basic issue; if employers do not perceive adequate marginal value from additional employment they will not create it. Expressed alternatively, free-marketeers assert that if not interfered with by government labour markets, as with all markets, will tend towards a long-run equilibrium whereby the quantity of labour which producing firms demand is equal to the quantity which households are willing to supply because the price mechanism will adjust such that those who would only work for higher wages no longer perceive work at the market rate as more valuable than what they forego in the process and are thus not unemployed, since to fit this definition one must be willing, able and actively seeking work, and thus unemployment falls to only its natural rate (principally those between jobs). Therefore by artificially raising the average wage rate through a legally mandated minimum, the quantity of labour which households are willing and able to supply rises while firms receive less utility for their wages and hence will employ fewer workers. This divergence causes ‘disequilibrium unemployment’. Keynesians argue that in fact even with a fully flexible labour market involuntary unemployment can still exist if there is insufficient demand within the economy – but if wages are theoretically free to reach 0, how can this be possible using the aforementioned definition? At some wage rate people will either voluntarily not seek employment or will be employed. Although Skidelsky attacks measures intended to increase flexibility in the run up to the financial crash it is obvious that there is no greater source of rigidity than the minimum wage and this is why it must be carefully considered. There may have been times in the past when minimum wages did not exist, but up until the 1970s our governments were significantly more involved in markets in other wages as well, so that wouldn’t be a fair reference point. So what if we did remove minimum wages? In the short term some wages may decrease, however this would not occur to a point beneath the value which people place on their own time and efforts since they would leave their employment, in accordance with the voluntary nature of transactions discussed earlier. However the number of people unemployed should decline significantly, in part due to some people leaving the labour force, but also due to firms being willing to employ more. This will result in greater output and material wealth. Plus, how is it worse to have people on lower wages than unemployed entirely, especially given that those who will leave the labour force must be those who place the least value on additional income and thus are less in need of it? However the longer term advantage would be the elimination of the pool of unemployed workers – this would force firms to compete over the existing workers, which can only result in higher incomes and better benefits for them in the future, since employers are less able to replace them with people willing to take lower wages as they are currently able to do. Moreover, Chang specifically makes the point that people in the more liberalised world are less willing to take risks and engage in entrepreneurship because the stakes are too high (2011, p. 228-229), since they could lose their jobs or end up in long term unemployment. However, without a pool of unemployed workers with which to compete this insecurity can be significantly reduced (aiding the likes of minorities and child-bearing women also), helping to create a more innovative and therefore productive workforce. He implicitly advocates welfare to provide this security role since he claims that growth under such systems can be just as good as in others, but it seems that this way we can do even better. And on another of Chang’s points, that a premature shift to less exportable service sector output in the west has contributed to mounting and harmful trade deficits (2011, p. 96-99), it is the lower skill manufacturing jobs which are unsustainable at a minimum wage above their actual value. So overall it does seem feasible, though I will not claim certain, that we would have a more stable, prosperous and even equal society, since competition for workers will force their wages up to the detriment of owners of capital, by eliminating a feature which supposedly safeguards equality.
Opposition to medical licensure is, I reiterate, a case made by Milton Friedman (2002, p. 137-160) which I intend to borrow to reinforce my point. In the US in particular doctors are able to charge patients a fortune for their services, occasionally forcing people into dire circumstances, which forms the basis for substantial amounts of criticism of the system domestically and abroad. Critics may assume this to be a failure of a capitalist system which should not be trusted with an issue as important as healthcare. Yet the reality is quite the opposite – the failure is in the government’s willingness to grant special status to industries in the supposed ‘public interest’ which is again a very easy but misleading concept for voters to grasp. By making it illegal to operate in a particular industry unlicensed, as in medicine, power is vested in the licensing bodies who are therefore able to restrict numbers admitted to their profession at will. This undeniably happens with restrictions set for medical practice in the US and yet more overtly through medical school quotas in the UK (AMA, n.d.; Coughlan, 2015). As a consequence they limit the physical number of man-hours worked within the profession and by restricting the supply in this way the rationing function of prices must operate to raise the price such that some consumers will be deterred from seeking medical help when they may otherwise would have done so. Things are different now than when Friedman made this point in 1962, and it is undeniably in the public interest to regulate medicine to some extent – for example, radioactive substances used in some treatments must be controlled, as must antibiotics because there is a very real threat to the lives of people if antibiotic misuse persists and resistant bacteria become common. There would no doubt be some liability issues arising from unlicensed medicine as well as other professions, though again seemingly solvable with some specifically targeted and limited legislation. But overall the advantages could be significant. Without restrictions on numbers of doctors a fully competitive market could arise in which in the US in particular peoples’ medical needs could no longer be exploited by the scarcity of doctors. Instead, their pay would generally decrease (bearing in mind that American doctors are paid vastly more than British ones) while cost for treatment would decrease as doctors would have to compete on price. Of course there would be fears of malpractice, however this is nothing that the invisible hand cannot deal with just as it deals with so many other issues and concerns; reputation of what would most likely be professional groups of doctors, potentially national companies, would be built and would be certified by a private organisation, with no legal authority, should people place sufficient value on such a system for it to be economically viable (as is the test for all private enterprise; if it fails, it produces inadequate value and hence constitutes an inefficient use of resources, though a system for medical confidence seems likely to be sufficiently valued). People would be able to use any kind of doctor they like in such a system – since all transactions are voluntary, if they do not personally perceive sufficient value in seeing a doctor trained for 10 years at the corresponding price to diagnose a minor ailment then that is their personal choice from which they gain value and maximise utility by spending money in ways which they perceive to be of greater benefit to them. Meanwhile, the quality of doctors for serious issues needn’t decline – if people do in fact perceive sufficient value in the more scarce and best trained doctors then they can choose to pay the corresponding price. If subjected to the same anti-trust laws as other industries (an unavoidable necessity, as I will discuss) then there would be no way to compromise the competitively of the system. It could be a system which delivers a superior standard of welfare in the US specifically, though it is also worth remembering that a nationalised system such as the NHS lacks incentive to be efficient in the same way as competitive private firms do, plus there is a significant quantity of wasted resources since there is no disincentive at all to use well trained NHS doctors for even matters of insignificant concern. Again I would not firmly propose that it be abolished, but it is an issue worth considering.
In any case, there can be no excuse for government intervention to support failing firms and industries, the notable recent example being steel. There can be arguments made along the lines of strategic trade and structural unemployment but the simple problem is that if an industry, or indeed any company, fails in a country it is because consumers to not perceive sufficient value from the output for it to be financially sustainable. If they did, firms could raise their prices and as long as consumers continued to perceive a value surplus then they would still make the purchases. However if this surplus is not present it indicates that there are ways in which the inputted resources, from labour to facilities, can be employed in ways which produce superior welfare for consumers. So there is no justifiable economic case to save any such industry – it merely prevents the growth of welfare in the macro economy in the longer-term. Companies failing is a crucial component of this adaptation process and must be allowed to occur, rather than allowing special interest groups, such as steel workers, though also in the past bosses in firms such as GM in addition to their workers, to detract from the expansion in all people’s material wellbeing.
Perhaps the issue most people will have with the above point concerns banking. I am in no position to argue against those who claim that the financial crisis would have been substantially more devastating had the governments not stepped up to assist. Maybe it is the case that if we lived in a fully liberalised system the economy would be more stable, or we could have recovered much more quickly, however there is consensus that the financial industry and repealed restrictive legislation from years before facilitated the taking of risks which should never have been taken and yet caused economic disaster. My point here is that we must always consider all sides to the argument and consider what is necessary. Calls for more regulated banking are certainly credible and should be listened to, even by libertarians, particularly deontological libertarians. It is OK to do what is necessary as long as we are honest about what really is necessary and we stick to all of the principles which I have so far established as effectively as we can. Moreover, as the root of so much economic activity banking specifically has the potential to disrupt far more than itself, again supporting a case for limited intervention.
Ultimately there are endless numbers of points which can be made concerning the merits and flaws in free and government influenced economies. Certainly markets play a fundamental role, however how they should be employed is the subject of countless books and a subject to which I can contribute nothing credible, though it is certainly an area which I am keen to explore in the future. But the bottom line is that libertarianism can be compatible with functional and potentially very successful economics if we commit to it.
I think I have made it clear by this point that taxes are bad, but necessary as I will develop further shortly. But certain tax systems seem more compatible with libertarian principle than others.
Flat tax income tax rates would immediately seem preferable. If we have the right to live and earn freely then there seems no reason why the government should discriminate against those who do this to a greater or lesser extent. To charge different rates of tax is for the government to make a judgement that different people are entitled to keep different proportions of their income, and based on everything examined so far there is no justification for it to make such a judgment. Yet this isn’t necessarily the most practical arrangement. Although all should be theoretically entitled to their incomes, a basic progressive system is probably reasonable. However it would be ideal to minimise this to a simple matter of personal allowances, incentivising those on the lowest or no incomes to enter work more so than if subjected to the same rates as all other people. However based on the previous discussions of equality it is evident that promoting it should not be the primary objective of income taxes.
Corporate tax is another matter entirely. Really there is no reason for it to exist, since it is merely an inefficient and indirect tax on consumers. If they will eventually bear the full cost of what is produced then why not tax them directly? There is the potential advantage of maintaining them simply so that it is possible to attract investment to certain industries such as renewable energy – which although seemingly contradictory to the principle of non-intervention can be justified on the argument of negative externalities as I will develop, and additionally would be more acceptable if promoted by lowering taxes, albeit selectively, since they are wrong as established. However, at the same time corporation tax only pushes firms to search for loopholes, and then the tax burden is not shared as it would be if administered to consumers directly, and firms can gain a market advantage which distorts the competition on which allocative efficient markets depend. Plus low corporation tax undeniably makes countries more attractive to foreign investment, improving wealth and job prospects if invested effectively (though not significantly increasing domestic business directly as higher income taxes will reduce disposable income to offset this potential impact – though the indirect effects through income from abroad are important). The likes of Luxembourg and the Cayman Islands may not be suitable example of this, though Ireland is a good example of a country which exercises it sovereign right to make itself attractive to multinational firms such as Apple, as has recently been in the news. There are no doubt many variables involved, however it is noteworthy that Ireland, a country with a much more troubled history and similar natural endowment to the UK has a GDP per capita nominally 17% higher (World Bank, 2015). Gary Johnson is proposing zero corporate tax in his 2016 election run for exactly this purpose (Ponnuru, 2016), and like a true libertarian proposes the abolition of income taxes as well. Instead he proposes replacing all taxes with consumption tax.
Value added consumption taxes might just be the best kind. It imposed equally at the point of consumption, so even though wealthier individuals are more likely to save more of their income in the short term, assuming that this money is eventually spent it should be approximately a flat tax. It can still allow the government to control externalities such as by adding disincentive to the purchase of petrol with a higher rate of tax or incentivise renewable energy by deducting consumption tax through ‘prebates’ given to producing firms (offsetting the ultimate cost of the tax to firms with a subsidy), assuming that the majority of products are kept at a fixed rate as to allow the markets to operate as freely as possible without artificial incentives and disincentives skewing the allocation of resources to purposes producing less welfare. Plus it removes one more government imposed burden – the responsibility to understand, file for and pay taxes, an increasingly complex system particularly in the US, with many different types and levels for which each individual is responsible. A consumption tax requires no active effort for consumers, and hence removes the visibility of the government at least in one way and causes it to demand less of our time. The exact rate at which it is set is unimportant, since It would have to yield equal revenues to any other system and so regardless that amount has to come out of circulation at some point.
An important note to make is that failure to pay due taxes constitutes a moral failure and is not acceptable. I make this point only because to the common generic grouping of the more economically liberal into ‘rightists’, as I have discussed, who are sometimes associated with issues of tax evasion and dishonesty, and for some reason occasionally seem to try to defend it. Such defences can have no fundamental link to economic freedom and I personally condemn all those who partake.
And on the issue of ethics, the government is also morally obliged to collect enough taxes to balance its budget. Wrong though taxes may be, it is equally wrong to pass on the burden of spending and interest on borrowing in the present to those in the future. If you accept Keynes’ arguments then you may accept it under exceptional circumstances as a matter of practicality and not principle, however even then ‘exceptional’ is the key word seemingly ignored by so many, Labour, Democrats and Republicans alike.
Read final part here.