Letters to the Editor
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Stronger government equals more freedom
Andrew,
What is meant by stronger? Has this guy been reading libertarian discussion. If not, Reason.com might be a good place to start.
One of the economic libertarians consistent points is that you need a strong government to guarantee property rights. If the government allows people to steal that greatly hurts the economy. One of the big measures libertarians like to use is strength of courts and level of corruption. In this sense, libertarian insist that a strong government is necessary for economic development.
Two other kinds of strength are negatives.
If the government itself is taking property - often with the claim of redistributing it or using it for the benefit of all. I (and I think many libertarians) would say that historically that has been incredibly damaging to economies.
Another strength that has created economic problems is essentially well intentioned meddling. Governments that go into great detail in telling consumers and businesses what they must and must not do. Deciding that TVs must have a v-chip or that which businesses can merge. Libertarians (at least me) will argue that this sort of interference generally causes a lot more damage than it does good.
I don't know the details of the federal intervention that you discussed. I personally, think that many of the Rooseveltian government policies regarding banking have proven themselves effective. (In this I may differ from some doctrinaire libertarians.)
But the general statement that countries do best as the government is stronger needs considerable qualification. Afghanistan needs a stronger central government in order to be libertarian. Most poor countries suffer from little or know property rights and need a government capable of providing those rights. They don't need government control of major businesses or the economy - in fact they're likely to be hurting from government interference in those areas.
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To answer your question
1. Of course businesses should pay for their own bad bets.
2. Government shouldn't try to manage money or credit, whether that means "injecting liquidty" or engaging in countercyclical manipulation.
Tyler Cowen is insightful on Rodrik's argument:
Dani Rodrik points out that government interventions in areas such as "education, health, social insurance, and macroeconomic stabilization" are
"targeted on a loosely-defined set of market imperfections that are rarely observed directly, implemented by bureaucrats who have little capacity to identify where the imperfections are or how large they may be, and overseen by politicians who are prone to corruption and rent-seeking by powerful groups and lobbies."
Absolutely correct. The obvious conclusion? Industrial policy is a good idea. I kid you not.
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Liquidity injections
Please remember that injecting liquidity does not mean a subsidy or a gift has been made to the financial institutions. The Fed is buying securities (typically ones that have the full faith and credit of the US Government behind them) from the institutions. It does that frequently for reasons having nothing to do with bailouts of risk - for example liquidity is injected during peak holiday shopping periods, so that there is enough cash in the banking system for credit card transactions to clear. It is just helping markets clear and getting compensated for doing so. The Fed does not use tax receipts for a bailout. Its actions are really not applicable to the libertarian vs. statist debate.
That said, I do support letting losses lie on the risk takers here and hope we won't have any bailouts.
And your headline is very, very Orwellian.
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liquidity and speed limits
I think that the question regarding liquidity has nothing to do with libertarianism, for the same reason that libertarianism is irrelevant to the question of whether roads should have higher or lower speed limits.
In either case, we have some governmental body regulating a community resource. Such regulation is inevitable. The issue for libertarians is whether participation in the community is obligatory or voluntary.
As I understand the workings of the central banks, they regulate the liquidity of the currency system. Any decision to increase or decrease the liquidity is simply a technical issue of managing a community resource, and has nothing to do with libertarianism.
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Complexity, Transparency, Access and Competition
Complexity in all thingsis inevitable. Complexity offers competitive advantage to those who can master it whether they be corporations, social ideologues or chess players. How many investors really understand, say, collateralized debt obligations or hedging well enough to pursue their real self-interest? In addition, competitive advantage also goes to those who can reduce transparency, bar access to information and eliminate competition. Against this, how can an a single individual pursue his/her self-interest without the assistance of some organization devoted to 'the people'? The world would truly be a heartless jungle where survival of the fittest would take on new meaing.
I assume this would be the radical new future offered by economic libertarians?
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Strong government: in fact and in law
I think that Rodrik's quote uses the idea of "strong government" in an ambiguous way, thereby creating a conflict where one doesn't exist.
He seems to be speaking of "de facto" strength -- the ability of a government to act effectively. Libertarians are typically concerned with "de jure" strength -- the internal restrictions on government behavior. I think that most libertarians would predict that "strong governments" (in fact) are the very governments that have a lot of internal restrictions on them.
This is an extrapolation with the libertarian focus on voluntary cooperation. There is great variation in the efforts made by various governments to gain the consent of the governed. To someone infatuated with power, these efforts seem like they would weaken the government, but libertarians recognize that a failure to gain consent will generate resistance against the government, and severely weaken it.
Rodrick points out that prosperous countries have strong governments -- these are the very governments that place extensive restrictions on the power of government officials, ranging from separation of power to regular elections.
In other words, these "strong" governments are also more libertarian.
Maybe Rodrick was referring to something else when he used the term "strong government". But I think he would have very little data if his conclusions were drawn from variation among stable countries.
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Puff Piece to Promote a Rodrick?
This brief seems to mainly be designed to promote Rodrick... and as a happy circumstance, can be used along the way to slander a straw man with the word "libertarian" painted across its chest.
But it fails at both.
When Rodrick says "First, I am not as unconventional as I sometimes think I am." I would only laughingly agree -- indeed in this day and age he is not unconventional at all... Strong governments? Gee, Rodrick, do you mean like the Supreme Soviet? Or perhaps like the current government in Zimbabwe?
Why not just go all the way with the party slogans? "War is Peace; Freedom is Slavery; Ignorance is Strength."
The entire mortgage fiasco is not a failure of the "marketplace", but rather an indictment of previous acts of the quasi-governmental agency known as the Federal Reserve; AND of the regulations (and changes in regulations) controlling the banking systems. Hedge funds exist almost solely BECAUSE of loopholes within those regulations, and were powered by people seeking quasi-legal ways around them.
No, the Fed (which is NOT a government agency, at most it is a privatized central banking cartel with a quasi-reporting to government "appointed" masters) -- is not the saviour here, but rather the root cause. Flooding the market with liquidity via insanely low discount rates (gee, thanks Alan) was what BEGAN the entire current problem. Pumping money into the market to redeem a tiny portion of the outstanding "securities" (a misnomer if ever there was one) really doesn't change much; it may reassure fools, but what does one expect?
The "markets" may have had a hand in making this bed, but it was with sheets designed, stitched and sized by the Federal Reserve under Greenspan.
The problem is that it is the REST of us that have to both sleep on AND keep our money in this ill-contrived mattress.