The Insidiously Seductive Nature of Libertarian Philosophy

Posted by Bob Lord

Libertarian philosophy is beautiful in its simplicity. It also is ugly in its simplicity, because, well, things aren't that simple. It's a shame Libertarians are unwilling to stray from their rigid doctrine. It might allow them to capture more of a following. Certainly, on matters of civil liberty, their platform is superior to that of either the Republicans, who seek to legislate morality, or Democrats, who don't have a coherent philosophy. The Libertarian philosophy on foreign affairs also has a lot to say for itself. And the Libertarian philosophy in military affairs contains an element utterly lacking in both the Republican and Democratic philosophies — a shred of human decency and morality.

I've had significant exposure to Libertarian thinking. My sister was the Libertarian candidate for Vice-President in 1992. We've had numerous conversations on the topic. She knows her principles cold. She can apply them to virtually every policy question that arises, with dependable, predictable results. But when peppered with questions about details and nuance, she has no answers. 

I recently posted a comment to another BFAZ blogger's post, wherein I argued that in a country whose people consider it the "greatest country in the world" every job should pay a living wage. One of our regular commenters, Thane, a seemingly devout Libertarian a la Ayn Rand, responded as follows:

Government cannot mandate a given level of wages any better than it can mandate a given level of prices (without severe unintended consequences). Society is better off if government sticks to prohibiting the few acts where offenses are clear (murder, assault, robbery and fraud) than allow it to impose a utopia via various government mandates. Obamacare (or if you prefer the Patient Protection and Affordable Care Act) imposes new mandates every year and each mandate makes it more likely that a given job will be performed outside the USA. I for one think that is a bad consequence.

https://www.google.com/search?q=wage+and+price+controls+austrian+economics

It all sounds so logical. But implicit in the logic is that the market works perfectly. That is an absurd assumption. Situations where the free market breaks down abound. Consider utilities. Allowing unlimited entry of sellers in the utilities market would be unwieldy. So, we've adopted a policy where we allow sellers to have monopoly power, but we police their rate-setting as an artificial means of limiting their profits to what a competitive market would allow. 

So, it's easy to rail against a mandated minimum wage. But it ignores several realities. First, the argument that "it is more likely that a given job will be performed outside the USA" doesn't quite cut it when you're speaking of minimum wage jobs, especially when those jobs are not transportable. Walmart cannot outsource its greeters, cashiers and shelf stockers. Can't happen. Hotels can't outsource their desk clerks and housekeepers. Yes, you could argue that Walmart competes with Amazon, which could outsource, but the argument is strained, to say the least. And, if you look at the financials of a company like Walmart, the wages paid to workers at the low end are such that there is little to be gained from outsourcing those jobs. That's why we haven't lost many minimum wage jobs to outsourcing. 

Second, and far more important, the Libertarian philosophy assumes the smooth operation of the market. But, just as the utility is at an unfair advantage as a seller, Walmart is at an unfair advantage as buyer of minimum wage work. In a perfect market, neither buyer nor seller is under a compulsion to buy or sell, with the resulting price being a "fair market" price. For example, if there are multiple grocers in town, each consumer can buy his or her eggs from any grocer, and each grocer only needs to strike a deal with a fraction of the consumer population in order to unload his whole inventory. But what would happen to the price of eggs if (a) there were only a few consumers, but millions of sellers; (b) one of those consumers purchased a large portion of the total egg market; (c) each seller had only one egg per day to sell; (d) if a seller failed to sell his egg on a given day, the egg would be worthless; and (e) if a seller went more than a week without selling an egg, he'd suffer tremendously. The large consumer in this example obviously is Walmart, and the unfair leverage it has over the sellers of labor is similarly obvious. Indeed, Walmart does exercise similar leverage over its suppliers, often with equally devastating results. In both these situations, the market breaks down, because the sellers (workers and suppliers) are far more compelled to sell than Walmart is to buy. As a result, the striking price is not a fair market price, but an artificially depressed price. And it's not just Walmart that may exercise such leverage over employees. In a loose labor market, even the smallest of employers has an unfair leverage over its workers. 

Libertarian doctrine is too rigid to address this societal problem. Government, however, must be adaptable enough to address societal problems. In this case, there are two mechanisms available to Government. One is the minimum wage. Just as governments set a maximum rate utilities may charge, governments set a minimum wage employers must pay. These policies are mirror images of one another. The other mechanism is organization of workers. This is the preferable solution. If workers form a union, the workers collectively are placed in a far more equal bargaining position. The union has reserves that allow its members to go a longer time without a job, thereby reducing their compulsion to accept what the employer offers, regardless of its fairness. At the same time, the employer's downside of not coming to terms is made greater, because it will have no workers at all, thereby causing it to lose revenue. 

I'm in the middle of Joseph Stiglitz's latest book, The Price of Inequality, How Today's Divided Society Endangers OUr Future. There's a section on that explains why the Libertarian philosophy is too simplistic. Stiglitz explains how the economically and politically powerful seek "rents," profits they receive by virtue of their position and nothing else. He further explains that Government's role must be to address the inherent unfairness of rent seeking, through regulation. I'd recommend Stiglitz's book to anyone, but I'd especially recommend it to Thane (and, I suppose, my sister). 

As I said, Libertarian philosophy is beautiful in its simplicity. But when you dig just an inch or so beneath the surface, the logic breaks down. Life in a society of three hundred million just isn't that simple. And therein lies the rub. It would be easy enough to modify Libertarian philosophy to address the realities of the marketplace, without corrupting the philosophy itself. But doing so would destroy the seductive nature of the philosophy — its simplicity.