Libertarianism dodged a bullet
If you had told me a year ago that there would be a global pandemic, I would have predicted that it would have the effect of somewhat discrediting libertarianism. Even a month ago, that seemed possible. This is from the FT on March 11:
One need not be of the left to interpret the century so far as a vindication of the state. After free enterprise clinched the cold war, government all but apologised for itself during the 1990s, even with a Democrat such as Bill Clinton as US president.
Since then, we have seen, in order, the heroism of first-responders on September 11, 2001, the slump-averting recapitalisation of banks in 2008, and now, as coronavirus goes about its dire work, the necessity of public expertise, public infrastructure, brute public coercion. Only a churl or an ideologue, their Ayn Rand novels frayed through overuse, could pretend any one of these shocks was amenable to a market solution.
I’m not a reader of Ayn Rand novels, and I’m a utilitarian. But even to me it seems as if the complete opposite has happened. Libertarianism looks better than ever. Why?
Over the past month, we have seen a torrent of governmental incompetence that is breathtaking in scale. There are regulations so bizarre that if put in a novel no one would believe them. In contrast, the private sector has reacted fairly well, and has been far ahead of the government in most areas.
In retrospect, this should not be surprising, as despite the claims above the US government largely botched the response to both 9/11 and the 2008 banking crisis. After 9/11, they created counterproductive agencies such as the TSA and the department of Homeland Security, and of course they also invaded Iraq. These actions did far more harm than 9/11 itself. They responded to the banking crisis of 2008 with an ultra-tight monetary policy that caused NGDP to fall at the sharpest rate in 60 years, which caused far more harm than the banking crisis itself. These are not the examples to cite if you are trying to discredit libertarianism.
This time around the failures have largely revolved around regulations and trade policies that have greatly slowed the rollout of much needed testing, and also reduced the availability of personal protective equipment (PPE). Adequate testing and PPE are viewed by experts as the two key factors in controlling the epidemic (beyond social distancing.) Governments can play a useful role in pandemics, but in this case our government failed to do so. They did not encourage social distancing until it was too late. They disbanded the federal department aimed at addressing pandemics. They failed to stockpile needed equipment such as surgical masks. Then they banned the importation of such masks (until just a few days ago), and put tariffs on needed parts for ventilators. They inhibited the domestic manufacture of needed equipment. They fought against price gouging, which actually helps during a crisis. They prevented private sector actors from doing much needed testing for coronavirus. They had numerous burdensome regulations than deprived the health care industry of needed labor, or prevented it from shifting to needed locations. They spread misinformation and outright lies, even as they (correctly) criticized China’s government for doing the same.
Some of this is the predictable chaos of a dysfunctional Trump administration, but keep in mind that the situation in Europe is even worse. And many of the worst decisions came out of the government bureaucracy.
Most importantly, governments failed to show any creative problem solving or leadership, leaving everything to the private sector. Here’s
Tyler Cowen Alex Tabarrok:
Bill Gates, who warned us–The Next Outbreak, We’re not ready–is getting ready for a vaccine, in fact for seven of them.
Business Insider: Gates said he was picking the top seven vaccine candidates and building manufacturing capacity for them. “Even though we’ll end up picking at most two of them, we’re going to fund factories for all seven, just so that we don’t waste time in serially saying, ‘OK, which vaccine works?’ and then building the factory,” he said.
Gates said that simultaneously testing and building manufacturing capacity is essential to the quick development of a vaccine, which Gates thinks could take about 18 months.
…”It’ll be a few billion dollars we’ll waste on manufacturing for the constructs that don’t get picked because something else is better,” Gates said in the clip. “But a few billion in this, the situation we’re in, where there’s trillions of dollars … being lost economically, it is worth it.”
This is exactly the type of planning and spending on attacking the virus that governments should be doing.
You might think that this sort of crisis would lead to lots more regulations. And obviously there have been mandates to close down certain businesses. But again and again we find governments removing regulations that were inhibiting the response. We were told that this crisis discredits globalization. In fact, governments have often been removing trade barriers in response to the crisis. And those barriers that have been added are widely viewed as counterproductive.
So what are the arguments on the other side:
1. Assume a can opener. “Yes, the federal government screwed up. But a better government would have done better.” Actually, local governments (of both political parties) also screwed up. I recall people saying that the 2008 banking crisis showed that we needed more regulation, even though the regulations we did have encouraged reckless lending. People seemed to think regulation would work if the government could have foreseen the banking crisis. But if the crisis were foreseeable, banks would not have made decisions that led to them losing hundreds of billions of dollars in market capitalization.
2. The “but China” argument. Yes, China has controlled the epidemic with some pretty draconian policies, but Taiwan has controlled the epidemic much more effectively with far less draconian policies. China’s not the country to cite if you oppose libertarianism—Taiwan should be your model.
3. The externality argument. Socializing has external costs during an epidemic, thus (it is claimed) governments need to regulate socializing. I certainly agree that social distancing is appropriate during an epidemic, but it’s not obvious that government is the optimal tool to enforce that policy. Don’t forget that excessive fear of health risks among the general public is another market failure. If experts warned people to stay home, they would probably obey for the most part. And it may be optimal to have a few restaurants open during an epidemic, for those with a strong preference to eat out. Some restaurants are open in East Asian countries.
Some point to government closures of schools. But private schools also closed, and often before public schools. Private employers voluntarily decided to have employees work from home where possible. The NBA closed down even before the federal government was focusing on the issue. I wouldn’t rule out the possibility of a “market failure” that calls for some government mandates, but it’s not obvious to me that these mandates make the social distancing more optimal than what you’d get from private actions.
4. The Defense Production Act. I’ve never seen a good argument for using this during an epidemic. Is there one?
5. Medical research. This is the strongest argument for government involvement. But it’s not so much about what to do during an epidemic; rather it’s about what to do prior to an epidemic. And of course the private sector also does lots of medical research. To be sure, there are “public good” arguments for subsidies. But again, the private sector also provides lots of subsidies. My wife used to work for a company working of drugs to address a future flu pandemic, and they received lots of funding from Bill Gates.
That’s not to say the government cannot play a useful role in encouraging medical research, but if that’s the main argument against libertarianism coming out of the coronavirus crisis, it’s pretty weak tea—especially when set again all the examples of government incompetence that have made the crisis much worse than it needed to be.
I’m not a doctrinaire libertarian who opposes all government policies. I support policies to combat global warming and provide income subsidies to low wage workers. I could undoubtedly be convinced to support a few policies here and there to address this crisis. But the evidence coming out of this epidemic certainly does not provide a strong argument for a large and intrusive government.
Update: In a libertarian world we’d definitely have “human challenge studies” of vaccines for Covid-19 (i.e. studies with people intentionally infected, as in flu vaccine studies.) This sort of study would greatly speed up the process and could save an enormous number of lives. Will it occur?
HT: Tyler Cowen, my wife.