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Why Libertarians are a Danger to the Economy

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I popped in to my local Deli the other night and got chatting to the very nice owner, a middle aged gent with a wry sense of humor and a particular talent for making chicken soup.

We got talking politics and I made the fatal error of assuming he was a liberal (after all, the deli is right in the middle of West Hollywood, the most uber liberal city on the planet). I began to rip into Governor Schwarzenegger for slashing the budget and taking most of the money out of education, parks and programs that benefit the poor. The owner calmly listened to what I had to say then responded:

"Yes, but what about the debt?"

I said I thought that the debt was a big problem, but defunding schools and welfare wasn't the best way to go about restoring California to fiscal health. The owner then went in to an obviously well rehearsed rant about government spending, taxes and interference into the market.

"These Democrats," he said, "they have all these committees and figure out ways of getting more money out of business so they can spend more of it on useless programs. That's why California is broke."

I didn't want to get into it given I was in his restaurant so I politely agreed telling him that I saw his point and did think that government should be more careful with its money. I paid for my soup and left telling him I would check out some of the websites he recommended (which of course I didn't).

Our conversation left me rather depressed because he was so absolutely certain of his own position, and so well armed with his own set of facts that there was no point in discussing it with him at all.

The restaurant owner represents a growing chorus of obviously educated Americans who honestly believe that the fiscal crisis facing the nation is a result of high taxes and government spending. These people make up the intellectual foundation for movements like the Tea Baggers and the Ron Paul Libertarians. While well intentioned (at least some of them), they are utterly misguided, wrong and dangerous to the economy.

The ardent free marketers believe that government is inherently inefficient, anti freedom and morally corrupt. Society would be much better off if markets ran everything and everyone was free to make their own way life rather than relying on government to bail them out or provide them with a free meal.

Of course this society has never, and will never exist.

The mythical 'free market' society is about as realistic as the Marxist utopias envisioned by Lenin, Mao and Stalin. I exists only in the minds of highly ideological people obsessed with Darwinian socio-economic theories and the purity of the self correcting market.

There is no evidence anywhere that totally free markets work, and contrary to massive propaganda, the overwhelming evidence suggests that centrally planned, highly protectionist markets work better than any other. As Cambridge economist Ha Joon Chang writes:

Britain and the US may have been the most ardent -
and most successful - users of tariffs, but most of today's rich
countries deployed tariff protection for extended periods in order to
promote their infant industries. Many of them also actively used
government subsidies and public enterprises to promote new industries.
Japan and many European countries have given numerous subsidies to
strategic industries. The US has publicly financed the highest share of
research and development in the world. Singapore, despite its
free-market image, has one of the largest public enterprise sectors in
the world, producing around 30 per cent of the national income. Public
enterprises were also crucial in France


, Finland, Austria, Norway, and

When they needed to protect their
nascent producers, most of today's rich countries restricted foreign
investment. In the 19th century, the US strictly regulated foreign
investment in banking, shipping, mining, and logging. Japan and Korea
severely restricted foreign investment in manufacturing. Between the
1930s and the 1980s, Finland officially classified all firms with more
than 20 per cent foreign ownership as "dangerous enterprises".

The debate between Libertarians and the economic Left should have ended after the spectacular collapse of the deregulated financial sector. Not only did deregulation cause the crash, but government interference into the market prevented it from getting much, much worse.

Yet Libertarians are still at it, claiming government is the cause of all our economic woes and a low tax, low spending policy will bring us back to the hey days of American power. But the inconvenient truth is this: Historically speaking, when federal taxes were growing, so too did the American economy.

The post war years in America saw the greatest expansion in wealth in history, yet the tax rate went up - a fact no Libertarian would dare admit.

I hope that my friend at the Deli would consider some of the evidence against his theory of government, but I somehow doubt it. It's too easy to use the government as a scapegoat, even though right now, it might be our only savior.