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3 Things That Make Libertarian Heads Explode

Libertarians tend to ride on theoretical unicorns that don’t take them too far in the real world.

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The Washington Times’ Timothy Carney danced around the cronyism issue recently by claiming that since most people get rich “through market means” and that their wealth accumulation doesn’t hurt economic growth, so we shouldn’t be upset.

First of all, what exactly does “market means” mean? Clearly, plenty of inequality comes right out of market forces, such as the flow of markets into areas where wages are low.  

Secondly, as economists have begun to look at the issue of income inequality, they are finding that it does, in fact, hurt economic growth. As Paul Krugman recently pointed out in the New York Times, the evidence, which includes two landmark studies by the IMF, and one by Barry Cynamon and Steven Fazzari as part of a working group at the Institute of New Economic Thinking, shows that reducing the extreme inequality in America would probably increase economic growth. In other words, if America would adopt tax and transfer policies more like Europe’s, we might well have more economic growth (countries in Europe with less inequality have weathered the recent storm caused by a faulty monetary system better than those with more).

Let’s not even get started on how inequality turns us into a class-ridden, Downton Abbey-style society, or how it undermines democracy by allowing corporate and billionaire dollars to dominate the political system, or how it makes people physically and mentally sick. Inequality is a scourge on society, and libertarians can’t deal with it.

2. The public goods problem. In the libertarian utopia, you would find nothing but individuals making private transactions in private markets. Those exchanges between individuals would always be fair, because the laws of supply and demand would make sure that you got the things you need at a fair price. You want a pizza, you buy a pizza from a pizzeria, which makes it for you at a reasonable price. Everybody’s happy.

Only, what if you want to buy your pizza in the evening, and you need streetlights in order to walk to the pizzeria? Now you’ve got a problem, because you can’t go out and buy a streetlight. 

Public goods like streetlights, fresh air and defense systems are not pizzas. They are fundamentally different because you generally can’t go out and buy them all by yourself. Unlike pizzas, they aren’t consumed by one person or group of people. For example, once they are built and working, every person who walks down a street benefits from the streetlight, and there is no way to take the light away from one particular person. The streetlight is a common, or public good.

Libertarians will try to argue that many things considered public goods can, in fact, be supplied by private markets. How would this work in the case of streetlights?

Let’s say you that somehow you, or a group of people, got a lot of money together and could actually go out and buy a streetlight. Now you’d have the problem of free riders, because people would be using your streetlight who didn’t help pay for it.

Things like streetlights have to be supplied off-market. The costs have to be shared, because public goods benefit huge groups of people. One of the core functions of government is to supply public goods that markets either fail to provide or cannot provide efficiently, and this is one of the reasons libertarians get into a tizzy about them.

Another public good that flummoxes libertarians is national defense. If you mention to them that the market can’t possibly supply the defense of a country, they will cross their arms and answer: “How do you know?” They will insist that if there is enough demand, supply will magically follow.