In an article published at Newsweek and Slate, Jacob Weisberg says the current crisis proves that “[libertarianism] makes no sense”. In fact he goes further than that:
Like other ideologues, libertarians react to the world’s failing to conform to their model by asking where the world went wrong. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitute a recipe for disaster. They are bankrupt, and this time, there will be no bailout.
Just In case you did not get his point, the article is titled “The end of libertarianism”.
The libertarian response has been swift and predictable. The Washington Post has an editorial today that makes several nice points:
The problem with the U.S. economy, more than lack of regulation, has been government’s failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.
[...] Government must be more selective about manipulating markets; over the long term, business works best when it is subject to market discipline alone. In those cases — and there will and should be some — in which government intervenes on behalf of social goals, its support must be counterbalanced with taxpayer protections and regulation. Government-sponsored, upside-only capitalism is the kind that’s in crisis today, and we say: Good riddance.
Meanwhile Matt Welch over at Reason points out that the rational approach is to weigh things against the alternative:
I just think that, all things being equal, capitalism is vastly superior to socialism, government is by definition inefficient, and would be much better off focused on essential tasks, rather than, say, nationalizing hundred-billion-dollar chunks of the mortgage industry, or trying to guarantee that asset prices never depreciate. In my world, at least, not all regulation is automatically evil, just ripe for being gamed by the very interests being regulated, and so better when pruned back.
Ilya Somin’s rebuttal at Volokh has several nice points, including this one, which seems to echo Welch:
No ideology can be judged solely by its performance in one particular crisis. Any set of policies is imperfect and therefore may provide flawed answers in a particular situation. Here is where Weisberg’s analogy with communism circa 1989 breaks down. The problem with communism was not that communists had handled some one isolated crisis poorly. It is that communism’s overall record over many decades was one of repression, mass murder, and economic decline – all with few or no offsetting benefits. Economic liberalization over the last several decades, by contrast, has lifted millions out of poverty around the world and greatly increased both personal freedom and standards of living. As Gary Becker points out, the period of economic liberalization in the twenty years or so prior to Bush’s “big government conservatism” saw enormous economic gains. He suggests that if today’s crisis were indeed an inevitable result of that liberalization, the overall balance sheet (25 years of massive progress vs. 2-3 years of painful recession) might be worth it.
Others, such as Cato’s Brink Lindsey have taken Weisberg to task for his simplistic analysis:
So serious people will be debating what triggered the current crisis for a long time to come. I’ve been reading voraciously in recent weeks, trying to get some handle on what’s going on, and I can tell you that there is nothing like a consensus among scholars yet — and certainly not a consensus in favor of some simple, monocausal explanation.
With regard to government interventionism as a cause of the crisis, Charles Calomiris and Peter Wallison have marshalled strong evidence that Fannie and Freddie played a major role in inflating the real estate bubble. Despite the fact that these two gentlemen have forgotten more about financial markets than Weisberg will ever know, Weisberg dismisses their analysis as not only wrong, but risible.
Here’s what I think, at least at this point. I think the whole system failed. Without a doubt, private actors succumbed to bubble psychology and perverse incentives, and their risk-taking grew increasingly reckless. Yet Weisberg’s simplistic morality tale that good prudent liberals were foiled by go-go free-marketeers doesn’t come close to mapping reality accurately. When exactly did Democrats try to arrest and reverse the steady relaxation of lending standards? When did they try to rein in the GSEs? Meanwhile, European banks are being battered by this crisis as well. Does anybody really think that European financial regulators are closet libertarians?
Aristotle The Geek, on the other hand, says that utilitarian apologies for libertarianism are self-defeating — liberty must be defended on purely moral grounds:
I dislike (hate is a better word) utilitarianism and utilitarian defenses of liberty. Since a lot of liberals and weak kneed capitalists defended capitalism on utilitarian grounds and went on about how capitalism and free markets were good because they raised standards of living, brought about competition, etc, instead of saying that free markets are right because they are free, because freedom is right, because freedom is moral, these “defenders” find themselves unable to answer criticisms regarding “market failure”. Blaming bad laws and excessive regulation, though these are to blame, does not cut it.
I will not go into a detailed analysis on why the libertarians are right and Weisberg is wrong (or at least dishonest). The question I want to address in this post is of a different flavor:
What do Weisberg’s article and its libertarian rebuttals achieve?
Here’s my radical suggestion: They achieve nothing.
There are some features that are common to every article — by both sides — on this topic I have seen. They cherry-pick facts. They deflate the opponent’s views and inflate their own. Every sentence is intended to further their own cause. In short, they counter, not analyze.
I am not saying that both sides are wrong. I do happen to think my side has the better arguments. In sum though, we are approaching this whole issue as if it were a debate.
Now there is nothing wrong with a debate. The problem though is that we have seen all these points many many times. None of the articles I have quoted above contain any fundamentally new points of view. Basically, there has appeared a flood of arguments since this crisis started but little attempt at unbiased analysis. We are all guilty of this extreme partisanship — yes, I am too.
It’s like we are stuck in different ideological echo-chambers. And there are intelligent people on both sides. And you know what, none of them are changing their minds. Weisberg’s article is not going to convince anyone who is not already on his side. And the libertarians aren’t going to win any Weisberg types — or even any moderately liberal types — over with their responses.
So here’s my humble suggestion to everyone. Analyze rather than attack. It will be difficult, especially when you think that the other side is spouting nonsense. But bite the bullet and address your opponent’s strongest arguments. Do so logically, unbiasedly. Take the best arguments from both sides — if you feel the other side isn’t making its point correctly, try to help them — and the most accurate data available to you and reason as if there was nothing at stake, except rigor and accuracy. Get beyond bumper-sticker sloguns and into details. Ultimately your ideas and arguments must stand on their own. Do not be afraid of the possibility that they may lose, at least temporarily.
There is a word for this approach. It is called intellectual honesty. And it is our best bet at conversion.