Australian Libertarians Revealed

John.Humphreys | October 20, 2009

In his article, World can learn a lesson from Australia, published in the Sydney Morning Herald on Monday 12 October 2009, he describes the libertarian position as ‘extreme … nonsense … delusions … discredited … naive nonsense … based on faith (not) empirical evidence … impervious to the destruction they helped to cause … prejudice,’ and goes on to suggest that libertarians are just paid lackeys for evil, rich men.

 

It is a scary picture. I was almost convinced that these strange people were a menace to society until I realised that he was talking about me. I started writing a rebuttal in defence of libertarian ideas, but soon realised Gittins had made no actual case to rebut.

 

As is standard for a paleo-Keynesian, he is sure that regulation and activist fiscal policy are good things – contrary to libertarians. He simply asserts that the recent recession proves his case, but provides no rationale or evidence.

 

I don’t really blame Gittins for not citing the evidence in favour of fiscal policy. There is hardly any.

 

The evidence for partial Ricardian Equivalence (where government borrowing is offset by private savings) is overwhelming. With the Australian stimulus package it is estimated that between 50% and 90% was ineffective due to Ricardian Equivalence.

 

Likewise, the evidence for partial crowding-out (where the stimulus in one sector of the economy comes at the expense of other sectors) is unmistakable. Government borrowing from overseas financial markets must be matched, by definition, by an equal drop in net exports. With more than half of government borrowing normally coming from off-shore, another significant chunk of the stimulus is ineffective due to crowding-out.

 

Macroeconomist Professor Robert Barro estimates the short-term impact of fiscal policy to be approximately zero, and even the US government admits the long-term consequences are negative. As you would expect, there is no correlation between recent fiscal policy and economic performance around the world.

 

In response to these arguments, Gittins says ‘no’. He may have had a reason to disagree, but if so, he was keeping it to himself.

 

The debate about bank regulations is a bit more nuanced because most people (libertarian or otherwise) accept the need for some regulation. However, many libertarians have pointed out that it was bad American regulation that encouraged home-ownership and excessive risk taking, leading to their housing bubble. It is fairly hard to argue against this position, so Gittins doesn’t try.

 

Instead of attacking libertarian ideas, he decides to attack libertarians at the core of our philosophy, which he describes as ‘markets are without fault.’ At this point, it became clear why libertarians appeared so scary to Gittins: we don’t exist. Nobody believes that ‘markets are without fault,’ and so Gittins was facing the terrifying prospect that non-existent people with non-existent ideas were secretly running the world from a bunker in New York.

 

The actual position of libertarians is far less worrying. We do think that markets work relatively well, but there is no such thing as a perfect market because we don’t have perfect people with perfect information. Likewise, there is no such thing as perfect government intervention because we don’t have perfect politicians with perfect information.

 

The government actually faces a larger information problem, and worse incentives, which explains why they waste a lot of our money. Given the poor track record of government intervention, libertarians prefer to leave decisions up to free people (so long as it is voluntary) and only accept government intervention when it is clear that the government will produce a net benefit.

 

In response, Gittins says ‘no’.

 

But it would be unfair to say that Gittins was purely negative and insulting. At times, he was also confused.

 

He complains about the financial bail-outs, then endorses the bail-outs (bringing us back from the ‘edge of the abyss’), and then blames libertarians for the bail-outs despite the fact that we were nearly the only group that opposed them.

 

In another passage, he insists that libertarians have mostly been ignored, then insists that we have ‘browbeaten too many’ into our evil plot for world domination and caused the crisis, and then insists that we have been ignored after all.

 

If you’re confused, don’t worry, so is Gittins. But all is not lost. As a consolation prize for trying, much in the mould of Obama’s Nobel Prize, I am delighted to offer free lessons in economics and libertarian ideas. Give me a call, Ross.