Not dead yet

Naturally, the latest economic collapse is proof that the free market must be regulated, that the lack of regulation was the cause of collapse, and that, anyway, libertarianism is dead. Writes Jacob Weisberg of Slate:

We have narrowly avoided a global depression and are mercifully pointed toward merely the worst recession in a long while. This is thanks to a global economic meltdown made possible by libertarian ideas. I don't have much patience with the notion that trying to figure out how we got into this mess is somehow unacceptably vicious and pointless—Sarah Palin's view of global warming. As with any failure, inquest is central to improvement. And any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.

Ignoring the fact that we have not avoided a global depression, having merely postponed it, I have no idea what libertarian ideas he's talking about. This isn't a matter of pragmatically ditching Bush and the Republicans now that the economy has gone sour; that alliance had been jettisoned long ago, back when it became clear that Bush's “compassionate conservatism” was hard to distinguish from big government liberalism. What Weisberg means, I think, is that the market was unregulated, and still managed to get all screwed up anyway. The basic flaw with this analysis is that it is untrue. Fannie Mae and Freddie Mac, for instance, were regulated by 200 government bureaucrats; these dutifully looked the other way instead of doing their job.

There is another rather large flaw in his attempts to pin the meltdown on libertarians—as if a group with such insignificant power and influence could ever do such a thing. Libertarians, or at least the Austrian economists among us, believe firmly that fiat currency, liable to inflation at the whim of a central bank, undermines the market: indeed, Ludwig von Mises blames this inflation for generating the business cycle. When Weisberg writes that: “the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong” he is completely mistaken. Libertarians have such a theory, which is more than can be said, say, of the neo-Keynesians. Moreover, the Federal Reserve has been inflating the currency—though they hide this fact, at least partially, by calculating the CPI in a dishonest fashion—which would seem to serve to vindicate von Mises. At the very least, it is patently absurd to argue that a crisis anticipated by a fair number of libertarians undermines their very existence.

The basic flaw behind all of this clamoring for more regulation is that it fails to understand the relationship between Big Business and Government. Most people seem to believe that the relationship is a fundamentally antagonistic one; but it is not so. As Patrick Denseen writes in the November 17th issue of The American Conservative:

The mortgage crisis has highlighted the tight bonds between a large central government and large centers of financial power... At least now we have seen the end of the idea that there is some fundamental antipathy between big government and big business.

Weisberg has apparently drawn a different conclusion from recent events. It's difficult to see why. The nepotism of the Bush administration was so extensive and flagrant that it is hard to see how anyone could have missed the obvious lesson: Government may chose to reward its minions in the private sector and vice versa. As Cheney was hooking up his pals at Haliburton with the spoils of our Iraqi misadventure, was it really surprising that other areas of the bureaucracy were likewise engaged in allowing their cronies to benefit from the hands who held the reigns of power?

The reasons I support the free market are twofold. First, a generally unregulated market respects property rights. Regulation undermines these rights, primarily, by telling me what I can and cannot do with my property, and secondarily, by taxing me to provide for those who violate my rights. The larger the bureaucracy, the more frequent and obtrusive will be the violations. Second, prices must be either dictated by central planners, or allowed to fluctuate as per the invisible hand of the market. The folly of central planning was demonstrated by the Soviet Union, even as the central planners of the Socialists in Washington decide who to bailout and who to let fail, and what stipulations the former must endure.

Libertarianism will continue to make sense as long as humans remain fallible. If men were omniscient angels, we could trust them to plan the way the entire economy worked. But absent these elusive attributes, it is wise to keep power from concentrating too greatly in too few hands.