Zed:

I almost always respect your opinion; I especially enjoy it when you are being appropriately flippant (an ironic statement, yes). Therefore, I wanted to take a few minutes to disagree with your post: The Two Flaws of Libertarian Economics.

The problem with self-described libertarians is that they are often very smart but only talk to other very smart libertarians. Their arguments become ridiculously path dependent until the point where they lose sight of the applications of their debates. Can a system of free-market local defense services exist and work better than the currently provided government ones? I don’t know; I doubt it; and I don’t really care. It’s simply not relevant and is merely the product of incestuous ideas.

Any libertarian who states that large corporations are more efficient than large government bureaucracies is simply dogmatic. The problems that plague the executives in government bureaus are largely the same as those that plague executives in both for and non-profit corporations: They answer to a stakeholders; They must show good results; If they don’t show good results they get booted; Therefore, the rational course of action is to take the least risky path to ensure their own positions. Bureaucracy is bureaucracy.

However, the libertarian doctrine (or I suppose I should say the facet of libertarianism that I subscribe to) does not require, or even encourage, large for-profit corporations as a means of solving all problems both social and technological. It does make the assertion that any system that maximizes the diversity of investment is preferable to one that does not. Capitalist systems are not superior because the profit motive forces capitalist actors to work harder, better, faster, stronger; Capitalists systems are superior because they take on more risk and often enough it pays off well. Libertarians who fail to recognize this do their own cause a great disservice. They are the same libertarians who dogmatically oppose all and any regulatory efforts.

Now, while the willingness to take on risks is responsible for capitalisms excess gains relative to state dominated economies, it is also potentially dangerous. To state that the current economic crisis proves the inefficiency of corporations, as you did, is very misleading — everything was distorted. Contrary to what you intimated, capitalism is an evolutionary system. And, just like any evolutionary system, it is not necessarily the best that survive in the short-run; It is only those that were, by accident or merit, the best suited for exploiting the current environment that survive. Corporations that were long-term blind and took on insane risks to capture the high short-term returns offered by sub-prime lending got big and got big fast. They were the most fit for that particular environmental aberration – an aberration created by the political fetish of advocating that every American, regardless of credit worthiness, own a home.

Removing the government’s encouragement and creation of the sub-prime industry would likely have prevented the sub-prime crisis. I am not stating that the government causes all economic crises (it does not) but in this case it was the central mover. I am also not saying that prevention of the sub-prime crisis would have prevented the current economic debacle. The appetite for risk was grotesque in recent years; If it wasn’t sub-prime, it would have been something else.

This leads me to my final point: A crisis is not necessarily a net-negative event. I realize this might be too controversial or offensive and I risk overshadowing my previous argument, but I believe it is an important point. Times of crisis, regardless of cause, result in a general refocusing of all efforts and a rethinking of everything. Certain deficiencies come sharply into focus. Oil may have reached $150 per barrel for fundamental or speculative reasons, but it doesn’t matter. No one can debate the utility of an alternative energy system and nothing could have provided a greater impetus for one than $150 per barrel oil. We do not yet know what positive impact the economic crisis will yield, but I will state (blindly) that I will be substantial.

Right now efforts are still focused on sorting out the economic crisis and the field is very murky. Your contribution was to state that policies that are libertarian in nature were fully or partly to blame. A libertarian who says zero-regulation is the only acceptable policy is completely wrong but, luckily, has no influence on policy anyway. However, the most valued elements of the libertarian doctrine – choice and personal responsibility – are, almost inarguably, worth defending. This is the true core of libertarianism.

Sincerely, John Nelson