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How to Quickly Prove a Libertarian Wrong

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Do you have an annoying Libertarian uncle who tells you that government is the source of all evil? Ever feel frustrated at a dinner party when a highly articulate free market ideologue lectures everyone on the virtues of free market capitalism?  As part of the battle to counter the myth that Randian, deregulated capitalism is the be all and end all of human existence, we thought it would be useful to have some quick-fire arguments in your back pocket to battle the 5 most common myths propagated by  Libertarians:

1. Free market capitalism is the greatest engine of economic growth in human history.

This myth is perhaps the most prevalent in Libertarian circles, and is easily disproved when you look at the history of economic development in the West and the level of government intervention in the economy. The stunning growth of the American economy in the 19th century had little to do with unregulated capitalism. As Cambridge economist Professor Ha Joon Chang notes, America was the most protectionist country in the world from 1830 up until World War Two. In fact, as Chang outlines in his book 'Bad Samaritans' every industrialized economy on the planet grew astronomically by strictly regulating markets, government investment and the protectionism of key industries through nascent stages of development. As former head of the World Bank Joseph Stiglitz points out, the countries that adopted free market reforms under IMF  'structural adjustment' policies all failed miserably and poverty actually increased.

2. Private companies are inherently more efficient than government because there is a profit motive.

This is true only if you define profit as the only measurement of success. Take health care for example. The health care industry in the US is extremely good at creating profits, but extremely bad at delivering health care. In 2009, WellPoint Inc., UnitedHealth Group, Cigna Corp., Aetna Inc. and Humana Inc. covered 2.7 million fewer people than they did in 2008, but made 56% more in profits ($12.2 billion). Conversely, Britain has one of the most cost effective health care systems in the world according to a study (pdf) published in the Journal of the Royal Society of Medicine. From the Guardian:

The "surprising" findings show the NHS saving more lives for each pound spent as a proportion of national wealth than any other country apart from Ireland over 25 years. Among the 17 countries considered, the United States healthcare system was among the least efficient and effective.

The National Health Service (NHS) is not designed to create profit, it is designed to provide health care and it does it far better than a for profit model.

3. The rich need tax cuts to be encouraged to spend and create economic growth during times of recession.

The facts on this one are squarely against Libertarianism. While many rich people do indeed create economic growth, in times of recession they cannot be counted on to rescue the economy as Libertarians have forcefully argued. As David Cay Johnston reported in Reuters, during the peak of the recession in America, businesses held on to their money rather than spending it:

IRS data suggests that, globally, U.S. nonfinancial companies hold at least three times more cash and other liquid assets than the Federal Reserve reports, idle money that could be creating jobs, funding dividends or even paying a stiff federal penalty tax for hoarding corporate cash.

The Fed’s latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today’s dollars, triple the Fed figure.

As the chart below shows, the recession was the major cause behind the rush to stash their cash, and the massive tax cuts passed by Bush and continued by Obama did nothing to reverse the trend.


4. The US has the highest standard of living in the world and everyone wants to be American.

Again, provably false. America is a great place to live for a lot of people, but the people who benefit from highest standard of living in the world are in Norway - a highly socialistic country. America has one of the greatest levels of wealth inequality in the West and has over 46 million people living in poverty - not exactly the best argument for American style capitalism.

5. America is a capitalist economy

While it is true that much of the population lives in a relatively free market economy in America, the overall structure of the economy is anything but free, and the higher up the wealth ladder you get, the more the government intervenes. As Noam Chomsky writes:

The whole economy's been socialized since -- well actually forever, but certainly since the Second World War. This mythology that the economy is based on entrepreneurial initiative and consumer choice, well ok, to an extent it is. For example at the marketing end, you can choose one electronic device and not another. But the core of the economy relies very heavily on the state sector, and transparently so. So for example to take the last economic boom which was based on information technology -- where did that come from? Computers and the Internet. Computers and the Internet were almost entirely within the state system for about 30 years -- research, development, procurement, other devices -- before they were finally handed over to private enterprise for profit-making. It wasn't an instantaneous switch, but that's roughly the picture. And that's the picture pretty much for the core of the economy.

The state sector is innovative and dynamic. It's true across the board from electronics to pharmaceuticals to the new biology-based industries. The idea is that the public is supposed to pay the costs and take the risks, and ultimately if there is any profit, you hand it over to private tyrannies, corporations. If you had to encapsulate the economy in one sentence, that would be the main theme. When you look at the details of course it's a more complex picture, but that's the major theme.

The truth is that the middle class and poor live under the dictates of the market (if your small business fails, there's no bailout), but the rich have a gigantic government structure designed to protect their wealth from competition.


Got any other rapid responses to Libertarian myths? Comments below and we'll post them later today.