Libertarians – Historically Lousy Economics

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Since the current Republican candidates hasten to promote “limited or no government,” I thought I would discuss the macroeconomic history of laissez faire – libertarianism of the last 150 years. This philosophy has many Ron Paul followers believing in it (and him) due to its simplicity and lack of necessity for understanding the myriad facets involved with economies of the scale found in the U.S. Unfortunately,  Ron Paul’s websites etc.,  do not point out its failures in practice. These long-term failures can only be observed over decades, not years, to observe the abject failures that result from such simplistic theories.

Historical Reference

In the latter half of the 19th Century, we had the most non-involved Federal government, in terms of economic involvement, imaginable. The U.S. had no income taxes, no anti-trust laws, no effective unions, no minimum wages, no Federal Reserve nor any fiscal spending such as Medicare and Social Security.

Individual wealth and large monopolies had developed because of the tendencies of essentially unregulated Capitalism to spawn fraud and deception on a working citizenry. Approximately 4,500 families owned most of the wealth in the country. Because of this concentration and lack of money, there were severe recessions-panics in 1837, 1857, 1873, 1873-79, 1892-6, 1904 and 1907, cumulating in the Great Depression of the 1930’s.

Government involvement in the economy really began with the largest government spending programs of WW II, followed by the Federal Highway System and the GI bill giving free education and reasonable home loans to many. This was the beginning of one of the best economies in the history of the world.

The U.S. really had only one major flaw to correct; that of a very under diversified, inflexible monetary system. In 1973, following the Arab Oil Embargo, President Richard Nixon saw the benefit of removing the U.S from the Gold Standard and adopted the fiat currency being utilized by virtually all of the U.S. trading partners. This allowed the U.S. equal footing on the global stage despite emerging economies in China and India’s propensity to pay ridiculously low wages to a captive and unskilled workforce.

Then the 1980’s came along with the Reagan Administration reintroducing this 19th Century failed macroeconomic philosophy which granted all favorable tax treatments to the wealthiest individuals. The stated belief being that if the profits rise for the wealthy, it would “trickle down” to the middle and poor classes in the U.S. This was Reagan’s ludicrous assertions instead of improving on the policies of the last 50 years. This gradual shift backward eventually culminated in the “Great Recession” under George W. Bush.

The Libertarians argue that there was still too much government involved in the 19th Century economy and that the free market place is inherently self correcting.

This argument has two major flaws.

  1. There is no clear definition of “free market”, nor are the components detailed that are necessary to comprise an economy in order to call it a “free market”. There are many types of markets with all differing human influences and operations, from corporate subsidies to tax deductions and rates.
  2. The second flaw (and the major one) is that it assumes humans and their commercial interactions are open, above-board, and lacking deception. There is no such thing as human perfection either individually or in their institutions. To the contrary, any economy based in its sole purpose as being profit no matter what the human, moral, ethical, or legal degradation ensues, is dooming any hopes of those aspects as a priority no matter the need for a successful, albeit unprofitable outcome, (i.e., curing cancer, diabetes, or any other genetic disorder).

Example: Why would any self-respecting libertarian, capitalistic, pharmaceutical company strive to cure a disease that would eliminate its profit from treating that disease?

Therefore, this libertarian philosophy does us extreme harm by always saying “no government” instead of “the right government”!

The following is a list of some of the reactionary policies, implemented in the last 30 years that have purportedly embraced the libertarian viewpoint of the role of an economy:

  1. Reducing anti-trust enforcement creating many new monopolies and oligopolies, thus reducing competition in the market place
  2. Eliminating the Glass-Steagall Act separating the money creators (commercial banks) from the money managers (investment banks) causing the worse financial crisis in modern history (i.e., the Gramm-Bliley-Leach Act and the Commodity Futures Modernization Act).
  3. Reducing the enforcement of financial regulations making the financial crisis even worse.
  4. Hindering raises of the minimum wage, reducing Union participation, and sending jobs to Asia. This trade war reduced the quantity and quality of U.S. customers, clients and consumers. This created excessive borrowing just to keep up with U.S. trading partners.

Our solution is to offset the imperfections of competitive markets-Capitalism by effective government policies. The four major flaws are:

  1. Inadequate monetary distribution
  2. Failure to plan for the long run maximization of profits
  3. Inadequate recirculation programs
  4. Reducing competition on basic wages and fringe benefits for our customers-employees

However, the economic philosophy should NOT only be providing a safety net, but also to create better quality customers, clients, consumers and citizens by providing basic minimal support for all by the government.

If the role of health care insurance is to provide pools of small amounts of individual premiums so that necessary expenses can be ADMINISTERED and paid by a non-intrusive administrator who has no vested interest in profiting off of said administrative duties, what could be better than a single PAYER system? The goal should be better, more affordable health care for the citizenry, not profit for an administrative practice that would be tempted to forfeit needed treatments for the profit of the administration of the payments.

This does not mean that government owns or operates these functions. It only means government administers payment for these necessities.


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  1 comment for “Libertarians – Historically Lousy Economics

  1. common2sense
    March 7, 2012 at 12:44 am

    The idea of “free market” assumes none of what you have described, in a free market, participants are expected to perform their own due diligence when considering their involvement in a transaction, rather than having the government perform it for them. If they don’t, they are lazy and deserve to be defrauded.

    To say that a company will not consider the long term consequences (environmental, human, etc.) is absurd, since those companies which do should be expected to survive the longest by ensuring the conditions for such survival, hence there is incentive to do so.

    The solution to a “free market”, the idea of which you seem to imply is troubled by human influence, is not to add more human influence via government regulations, intervention, etc.

    If you think the government helps transparency when it comes to the market, then I refer you to the case of one Bernie Madoff, whose scheme was perpetuated by the over-confidence in government regulation. Also to Enron, Worldcom, Fannie Mae, and lately, MF Global, the largesse of whom was achieved only because the scrutinizing of which was deferred to the government, scrutiny that was much less severe than if the responsibility had been left to market participants.

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