After writing the previous long piece exploring the relationship between libertarianism and paranoia, I wanted to draw out a particular “take home message” for those with little patience for the long argument I made there. Republican candidates for high office in the November 2010 elections (as well as a few Democrats) are perpetuating a “mass delusion” about government’s role in the economy and society. These incumbents and candidates espouse views that are so out of touch with our contemporary reality and the reality of government and markets, that they may themselves have personal delusions, though their individual mental state is not important for this argument. What is beyond a doubt is that this Republican Party, with a few notable exceptions, has based its program and its communications on falsehoods that are either understood as such (and therefore lies) or are fixedly held ideas that have no relationship to the world in which the Republicans do now and might in the future co-govern. The latter are mass delusions, penetrating into some of the highest levels of government, mostly on the side of the Republicans.
The question of whether Republicans know or don’t know that they are promoting an almost completely false view of government and its role is at the moment beside the point. What is most important is that they have continued to feed off the decades-long slander of government’s role and led concerned voters to believe this delusion. It is a widespread delusion because it has been prepared with a continuous diet of media reports that are premised on the idea that government is always the culprit with perhaps the exception of various military exploits. Our current economic difficulties are only partially related to government activity. As it turns out the combined activity of private actors with some help from laxity on the part of Federal officials brought the economy to its knees in 2008. The Republican and Tea Party story is an attempt to make government spending, which has accelerated since and in response to the downturn, the culprit when that government-led response is the still insufficiently large and well-organized response to the downturn.
Whether or not Republican candidates and leaders are strategically lying or simply deluded, they are also lucky to be able to exploit pre-existing features of our collective self-understanding that supports with falsehood rather than fact that government is necessarily a hindrance rather than a help to the economy and society at large.
Disorganization within Economics Enables the Delusion
As pointed out in number of posts on my “Meta-Economics” blog, economics is a profession/academic discipline, along with other social sciences, with massive scientific problems. Social sciences in general and economics in particular offer a smorgasbord of interpretive frameworks from which the public and politicians can generally pick and choose which ideas appeal to them more than others. Economics is actually less disorganized than psychology or political science, which are packed with a still greater diversity of theories and subdisciplines which can be arrayed according to taste. On the other hand, economics has been critical to action in society on a massive scale, as economists are counselors to both high level government and corporate leaders. Economic policy shapes our world to a large extent. The choices of economic framework offered these leaders, leads to the ability to “personalize” the advice actually accepted and thereby enable uncomfortable realities to be avoided.
In particular, libertarianism and the rudimentary neoclassical economics upon which it is based, is in turn founded upon a motivated or ignorant misreading of Adam Smith’s work. The passages in Wealth of Nations, which support the notion of prudent, narrowly self-interested traders and small producers minding just their own businesses leading to the optimal social outcome (the invisible hand) are favored by libertarians while those sections that deal with the provision of common and public goods by government are ignored. Furthermore, Smith’s assumption that all should be governed by the Moral Sentiments (his pre-Wealth of Nations 1759 work) is left entirely out of the picture. Wealth of Nations itself can be considered a polemic (against mercantilism) and therefore itself an “edited version” of reality presented for the sake of argument. The notion that unregulated markets “will provide” has become a mantra supported by a fraction of the economic profession but more often a motivated misreading of Economics 101.
Whether or not Smith’s work is a substantial or sufficient basis for the discipline of economics, we now know that market transactions create external costs which pile up and endanger the basis of economic growth and societal well-being (pollution being one). Furthermore, the provision of common and public goods by government is not optional or merely a sidebar to economic policy and economic activity. Markets and economies need public and common goods to be provided though how much of those goods can be provided at any one time will almost always be a matter of political discussion. Also, the externalities of market transactions need to be addressed either by government rule-making or programs of innovation or a combination thereof. Market actors themselves will tend to ignore the costs they impose on others until such time as government and very occasionally their conscience, tells them to stop.
Thus it is possible to find economists who will substantiate the delusion that government action in the economy is by its very nature sub-optimal or harmful. Furthermore a couple generations of less polemical economists have attempted to shoehorn the notion (most notably Paul Samuelson) that government needs to provide various supplements and regulations to market activity but with enough timidity that the libertarian reading of Smith has inserted itself as the default summary of how markets work over time. Libertarians (inclusive of a monetarist like Friedman and the founder of neoliberalism von Hayek) feel that they are speaking from authority when they offer the truncated view of Smith as economic law. The simplicity of their reading of Smith also adds credibility for some: saying that economics is the study of two interacting entities (market and government) is more complex than studying just one (the market).
The Drone of Talk Radio and Fox News Supports the Delusion
AM talk radio, most notably Rush Limbaugh and Michael Savage, as well as Fox News operate with the assumption that government is expendable and that private business and unregulated markets are always better and more competent. These news and commentary outlets have no commitment to providing workable solutions for governing the US. Instead they operate within the delusion that government is optional for a stable well-managed economy and society. These sources of talk are very widespread and have been in this business for at least a decade, creating with them a common sense based on the delusion.
MSNBC has emerged lately as counter-programming that attempts to include government as part of the solution. Yet MSNBC has not yet created as durable a “mind share” as the combination of AM talk radio and Fox News.
The Delusional Quality of the Republican Narrative Should be Obvious
While it is possible to find theoretical justifications and economic pundits to pile on with anti-government propaganda, policymakers should know from a quick reading of economic history that the libertarian “free-market” story is largely bunk. The great prosperity of the United States in the 20th Century following the Great Depression was enabled by wartime Keynesian policy as well as a post-war safety net that enabled Americans to spend more money on consumer goods spurring the economic boom. Some markets have done well with minimal regulation and government involvement but others, including large-scale manufacturing, have almost required government to be there to smooth the path via an industrial policy. Left to their own devices, individual market actors cannot respond alone to global, large scale issues as to for instance, the need to cut carbon emissions without regulations. If a single economic actor decides to cut emissions, he or she often puts him or herself at a competitive disadvantage.
All of this should be accessible to most moderately well-informed and educated people, among which should be Republican policymakers and candidates. For some reason, Republicans feel that they can exempt themselves from the most relevant fact base for the sake of making their libertarian arguments.
Governing for the Lucky Few: Forgetting about Aggregate Demand
The libertarian delusion is built upon the “best case” scenario of almost everybody being able to find a niche in unregulated markets which allows them to earn a livelihood and own property. They tend to overlook that markets reward winners and second-place finishers with outsized rewards while punishing most who finish further down with uncertain livelihoods and failures. The distribution of rewards is a good portion luck, a portion ruthlessness, combined with some merit and hard work. Still many highly useful human and natural assets can be overlooked or degraded in the development of markets. Lately we have seen how in financial markets that various forms of deceit and shady dealing have led to outsized rewards for the few who are simply shifting wealth around. The piling on of riches at the top of the pyramid is for libertarians the way to go, a form of “trickle down economics”; markets are necessarily “right”.
Many Americans play along with this because they hope and pray that some day they too will be one of the rich and famous. The identification with and dream of wealth and success is a powerful analgesic for Americans, the vast majority of whom most likely not become wealthy or famous. Libertarians are betting on the Horatio Alger story alone, with which many Americans are still wanting to preserve as a means to “keep hope alive”. It takes political finesse for more reality-based leaders to remind Americans that not all of them can be wealthy celebrities, yet still have merit, decent comfortable lives, and respect.
The fundamental flaw in this theory of unregulated or loosely regulated markets leading to the optimal allocation of income is that both in the 1920’s and in the 2000’s we have seen through statistics and bitter experience what happens when wealth is piled on at the top. In both the 1920’s and the 2000’s inequality of wealth reached record levels in the US; what followed both periods were the two worst economic crashes in the last century. People’s ability to buy goods starts to weaken as they earn less and less or take on more household debt. This is what economists call the problem of sagging aggregate demand which libertarian economists tend to dismiss as largely non-existent. Fundamentally without a redistribution of income downward, the economy starts to fail, as the poor and middle income spend more of what they earn; at some point even the very rich will start to feel the effects of massive income inequality, even though they will be more insulated from its effects. Libertarians and allied economists are literally “in denial” about the problem of sagging aggregate demand as it contradicts their fundamental believe in the sufficiency of unregulated market exchange as a distributive mechanism.
Furthermore, libertarian economic theory has a remarkably sunny, one-sided view of that fundamental human emotion, envy. Envy does not only inspire acts of self-improvement and aspirations to be like the successful. Some envy will turn to hate or become the motivation for criminality or resentful attacks on the well-heeled happiness of the minority. The idea of exaggerating our society’s already well-established propensity to overpraise the winner has not been very well thought-through. When given the choice, most of the rich would probably prefer to live in a safer society with somewhat less money rather than much richer but living behind barricades.
The Libertarian/Republican Fallacy of Composition
The Republican/libertarian ideal that is substituted for reality is based on the notion that society and the economy is simply a matter of adding one Horatio Alger story to the next thereby creating a series of such stories. Society and economies, as it turns out, are not just the stories of individuals or individual companies succeeding. Sure every company and individual can often do more to enhance his or her performance. But there are also systemic factors, among which is aggregate demand, which individual players in markets cannot manage and maybe cannot even perceive. The building of infrastructure is an area in which governments stoke and shape markets. America’s infrastructure has decayed and is slipping into Second-World status as the libertarian fantasy about the market providing for everything has gripped government and parts of the electorate.
Philosophers call this type of error a “fallacy of composition” that just stacking up parts will necessarily lead to the whole. Integrating parts into a whole requires a view at a different level of abstraction, in this case the level of government, which has the mandate to manage the macroeconomy as needed. Libertarians deny that we need this perspective.
The Fundamental Delusion
The fundamental delusion promoted by the current Republican Party under the influence of libertarianism is that markets can provide what government can or does provide. In fact, there is no real alternative to government in order to live civilized lives, a fact which Republicans discover when they actually control government. Yet they remain caught or wish to entangle the electorate in their delusion that there is a choice between government and markets when it is about improving both through their interaction. Figuring out the quality of that interaction between government, polity and markets is the real role of politicians from which Republicans distract the electorate and themselves via the delusion. The delusion then does a good portion of its damage as a monstrous distraction from real discussion, debate and policy formulation.
The Upcoming Decision of the American People
In November, it will be up to the electorate to decide whether they prefer politicians that actively promote delusions or politicians who are trying to grapple, albeit with mixed success, with real issues. For the most part Democrats are in the latter camp.