The Business Of Liberty

Painting by Max Peter

There is a pervasive line of thinking in American politics today that says government regulation is an impediment to personal freedom. Adherents to the pure faith of libertarianism have long argued the point; social conservatives eager to appease their pro-business brethren have long co-opted the point. This notion is the central consequence of the idea that all government is separate from the people, and mandates that no form of government can ever reflect the ideals of a people.

Lacking in this conversation are any mentions of what personal freedom is, or who it applies to in our society. In 21st Century America, the conservative arguments on personal freedom center almost exclusively on the right to earn and retain wealth. This economic focus departs from the pure libertarian ideal that encompasses all personal liberties, but serves nevertheless as the foundation of the entire argument. The conflict not addressed, that personal liberties of diverse peoples necessarily conflict with one another, is the conflict that we resolve via a government.

Even the laws that are, on the surface, easily recognized as reasonable limitations to personal freedom are fraught with complication. The law against murder would seem unencumbered by moral ambiguity, but what of self-defense? What of murder done to a child molester? What of murder done in vengeance wholly endorsed by the majority of society? All government regulation, or law, is defined by these moral questions and complications. The actions of government are primarily reflections of these questions, whether the subject is the taking of life or the operating of a business. A good and proper question, answered in part by the confrontation of ideology, is “how much is too much?”

We could pursue this line of argument into the sticky political dilemmas of capital punishment, abortion, war, or sexual molestation; this essay will, however, stay with the more mundane subject of business. What impediment to liberty is formed by the regulation of government and how widespread is the resulting loss of liberty? In confronting this subject with valued libertarian friends who visit The Rational Middle, I am struck by the idea that the liberties of individuals who own or attempt the ownership of business, are more important than the liberties of those who only seek roles as worker/consumers.

I won’t presume any further explanations of the libertarian point of view on this issue; instead, I will offer a selection of vignettes that will illustrate the liberal argument in favor of regulation. Please note that the government of the United States and the governments of its components are representative democracies; they act for and at the direction of the people. To the extent that they fail in this regard, it is the result of a lack of participation and corruptions that are human in nature (i.e. they will exist in any form of government). In other words, it isn’t the model that is failing, but the execution.

Food and Drug

The United States has a system of regulation that moderates the production, distribution, and labeling of pharmaceuticals and food. These regulations, bureaucracies, and systems add cost to the system and can add significant barriers to entry to the various markets. These facts provide a reasonable argument that the liberty of those who would chose to operate ventures in these markets is compromised. The other side of this equation however, the side of the consumer, must also be considered. Would an unregulated marketplace impinge the freedoms of working consumers? It in fact does.

The phrase, “snake-oil salesman”, has a solid grounding in historical fact. Without regulation and enforcement, the market will produce and sell products and services designed to satisfy one primary need; the need of individual businesses to make profit without delivering value to the consumer. Libertarians commonly dismiss labeling laws and production standards with a rallying cry of “personal responsibility”. It is, in their view, the consumer’s responsibility to figure out whether an advertiser’s claim is valid. In principle, this notion works, but only insofar as the consumer has a reasonable ability to discern the truth. But is it reasonable to expect the average consumer has the capacity to research claims, the education to know one claim from another, or the market flexibility to choose an alternative? The individual right for a parent or doctor to know what is in the bottle marked “medicine” supersedes the rights of the snake-oil salesman to market a wonder drug made of sugar syrup.

Unions

Unions and corporations have in common a history of collective power used to destructive ends. It is a fact of history that any form of human organization has the capacity to do damage commensurate with its scale. But unions have forced changes to labor practices and cost structures that impose challenges to every business model used within the United States. As before, these facts provide a reasonable argument that the liberty of those who would chose to operate ventures has been compromised. Again however, the looming figure of the worker/consumer poses a challenge to the construct. What gives the rights of an entrepreneur or corporate board supremacy over those of individual workers who choose to form a labor organization?

Again, damning unions as a concept because of bad practices is no more reasonable than damning corporations for the same. Those who choose unions have a commodity to sell, and should have equal rights to leverage market pressures in the marketing of their commodity. Our system has, in the context of labor versus business, been broken largely by a series of laws designed around ideology rather than functionality. Regulations in this theatre of operations have either been “pro-business” or “pro-labor”; I would argue that neither is pro-liberty.

Finance

The 20th Century saw the evolution of regulation in the financial marketplace move in a complete circle. For four decades, our democracy had a nearly happy medium of regulation that allowed for tremendous private capital investment aligned with unprecedented banking stability. Opportunities for rationalized deregulations at the end of the century, of the type that would allow for a safe expansion in private investment, were ignored in favor of a wholesale retreat from financial safeguards. The freedom of a handful of individuals to make unlimited sums in unproductive enterprise overcame that of the balance of Americans, both consumer and producer. Market failure on that scale robs more than just the perpetrators of their liberty (and in this case, the perpetrators largely got away with it).

The collapse of the housing bubble, and its effect on the economy, present a case study in both shared liberties and shared responsibility. Reckless financial choices by working Americans formed the fuel for explosive collapse, but the unlimited pursuit of wealth by Wall Street built both the foundation and framework for the tragedy. Both sets of actors in this drama were acting according to freedoms recently expanded, and the consequences were inevitable.

It doesn’t take a majority; of bad police officers, reckless homeowners, profit-seeking investment bankers, perverted ministers, or unscrupulous politicians, to muddy the waters. Laws and regulations are, in the abstract, written to prevent an irresponsible minority from limiting the freedom of the majority. But it is human nature that all of us are candidates for membership in that minority. How fast would you drive if you knew there were no traffic cops on duty (be honest)? Will a fast food restaurant dilute its ground beef it if thinks it can get away with it? Will a banker sell insurance on a financial instrument he doesn’t own, created by another financial institution using fraudulent methods, if they are able to and it will mean windfall profits?

Personal responsibility is vital to the democracy, and the capital marketplace is the most efficient economic engine for our nation. But a healthy acceptance of human nature and economic reality must exist in tandem; an acceptance that manifests in rational and fairly applied regulation and law.

The Rational Middle is listening…

17 thoughts on “The Business Of Liberty

  1. Good post Michael. I am confused by this bit.

    “Please note that the government of the United States and the governments of its components are representative democracies; they act for and at the direction of the people. To the extent that they fail in this regard, it is the result of a lack of participation and corruptions that are human in nature (i.e. they will exist in any form of government). In other words, it isn’t the model that is failing, but the execution.”

    It seems to me that any internally coherent system of government incorporates a model of human behavior, and that any such system’s failure to achieve its ends is a “failure” of the humans to “execute” the behavioral model. Put differently, the key challenge for a political model is to accurately predict what people will do under certain institutional circumstances. What I am not clear about is whether that is at odds with what you are saying, or affirms it.

  2. Thank you Sean. Interesting points.

    “What the author fails to recognize is the inherent tendency of people to be generally honest.”…”Laws are merely a reflection of that trait.”

    If people were inherently honest, then we wouldn’t need laws. People are inherently motivated to take care of themselves and those who are important to them.

    “The Libertarian model advocates the most personal liberty so long as it is not at the expense of another humans liberty.”

    Actually, our system of government advocates that very principle, what we are in disagreement about is the extent to which the liberties of a given business owner or industry impede the liberties of other citizens. Your comment repeatedly mentions “law” while repeatedly arguing against it. The “Libertarian model” is a fantasy cooked up by otherwise intelligent people raised in a well-defined and ordered society.

    You wouldn’t last five minutes with your “everyone is fundamentally wonderful” mantra in a place that mirrors the “Libertarian model”…like say, Somalia. Survival of the fittest Sean, contradicts the very notion of the preservation of those liberties that do not infringe on another. It isn’t immediately apparent that predators are overly concerned with the civil liberties of their prey.

    “Fraud laws and respect for the Rule of Law in a Libertarian society would protect consumer’s from “snake oil” salesmen.”

    What is a “fraud law”, exactly? It sounds suspiciously like an invitation for the “Rule of Lawsuit”. You forget, gentle commenter, that we lived in this regulation-less utopia long before Ayn Rand came down from the mountain with her steaming pile of fantasy. The snake oil business was very good indeed before the people demanded their democratically elected government do something about it.

    “If one is so foolish as to not do research on a product that is potentially life-threatening, and thus dies, then that would be a perfect example of survival of the fittest.”

    And how would would know a product was potentially life-threatening in the first place? Then, how would one “research” the product. In your libertarian fantasy, where would this information come from? You wrote of credit default swaps with derision, as well you should. But those products were created by “inherently honest” people in an unregulated market. They are the inevitable action of an unregulated market; they are financial snake oil.

    “He also offers up as conjecture the supposed failure of free market capitalism during this Great Recession and housing bubble due to corporate greed…”

    No, no conjecture, and no indictment of capitalism as I am a capitalist myself. This Great Recession was caused by the collapse of the housing bubble. The collapse (and in its initial inflation) were caused by a number of factors, some of which you correctly identified. But I am curious about your indictment of “corporate greed”. The stockholders and agents of a corporation are entitled to pursue their goals in a free society, are they not? Or does your libertarian fantasy not include corporations and their pursuit of profit?

    In any human society, the pursuit of power is the greatest threat to liberty. We struck on representative democracy as a means to harness that pursuit and to channel it to product enterprise. Absent the control of a democratically elected government, it will be powerful individuals or corporations, acting in their own interests, that define our society. Someone or some entity will always rise to control, and completely free markets always evolve towards monopoly. This is the real law of human nature.

    You argue persuasively against corporate croniesm, and you rightly point out some of the flaws in our banking construct, but the libertarian model doesn’t address the control of either issue. Absent the Fed and financial regulation, private banks with far more power than average citizens will have free reign to construct and market all the financial snake oil they desire. Your belief in human honesty notwithstanding, it only takes one successful crook in an industry to turn the rest to dishonest tactics. Well written regulation serves to screen out the crooks, allowing the honest to thrive. Poorly written regulation inhibits the honest, while failing to screen out the crooks. What is needed is not a roll back of the idea of regulation, but a rewrite of the canon of regulation.

    Liberals have argued against the power of corporatism for decades, and the far left is currently enraged that our President has taken steps to align himself more closely to the big operators. But libertarians have supplied corporations with their most passionate and intellectually capable defenders. This column argues that citizens operating through the scale and power of a government that they have a stake in, are far more likely to retain the maximum of liberty than they would in a world patterned on the libertarian ideal.

    “If you call the model a failure you are calling human kind a failure.”

    These are your words, not mine. The notion that an attack on libertarianism is an attack on humanity is beyond arrogant and disregards the whole history of human development. The libertarian model is no more essential to humanity than our 21st notions of liberalism and conservatism Sean. We are all of us arguing an American problem in our time…nothing more, nothing less.

  3. Unintended consequences. What the author fails to recognize is the inherent tendency of people to be generally honest. If this were not the case then there would be no functional society on even the smallest scale. Laws are merely a reflection of that trait. The Libertarian model advocates the most personal liberty so long as it is not at the expense of another humans liberty. He offers up several colloquial examples of regulation providing protection, but this “protection” would’ve been offered anyway through word of mouth. Fraud laws and respect for the Rule of Law in a Libertarian society would protect consumer’s from “snake oil” salesmen. If one is so foolish as to not do research on a product that is potentially life-threatening, and thus dies, then that would be a perfect example of survival of the fittest.
    He also offers up as conjecture the supposed failure of free market capitalism during this Great Recession and housing bubble due to corporate greed, but he fails to point out the fact that it was corporatism and crony capitalism that have ruled the Federal Reserve system and thus the American economy for quite some time – nearly 100 years. Had it not been for the monopoly of the Federal Reserve on the money supply, which, by the way is no more federal than federal express, there would never have been a housing bubble in the first place. And if it weren’t for Federal Reserve-sponsored fractional reserve banking, banks would never have the room to go after production-less products like credit default swaps. And finally, if it weren’t for the fact that the Federal Reserve “bailed” out the “too big to fail” banks – contrary to what the free market laws demanded, the banks would have gone bankrupt and the resources would have gone to those who were more wise and principled in their approach to banking.
    The fact of the matter is that the Libertarian Model is merely a reflection of human consciousness on the individual level. If you call the model a failure you are calling human kind a failure. If you stop the clock at any one juncture you may see failure of humans as a whole, but if you keep an eye on it over time, I believe we generally do the right thing, which, simply put, is the thing necessary to carry on the species.

  4. @Robert Page…first, thank you for your comment.

    Now…

    Please see the Gramm-Leach-Bliley Act (Financial Services Modernization Act of 1999) at this link: http://banking.senate.gov/conf/

    This act dismantled the regulatory structures erected by the Glass-Steagall Act of 1933, which had previously kept banking, securities, and insurance companies separate. It also removed the prohibition “against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank.”

    This act, which is universally (regardless of ideology) seen as a major act of financial deregulation, created the mechanism of financial collapse. Firms such as Lehman Brothers, Citigroup, and AIG (among others), were able because of this act to do the following:

    A) Buy or create derivative products based on interest or principal cash flows from instruments such as mortgages and car loans.

    B)Sell said instruments to their own brokerage customers as “premium” investments regardless of actual risk (in other words…they could deliver risky products without paying a return commensurate to the risk).

    C) Create insurance instruments as hedges against their mortgage backed securities and other derivatives and sell those to the same client pool.

    The act created the situation of “too big to fail”; so long as the foundational cash flows were realized on schedule, everything kept spinning. Once defaults started to rise, and values started to fall, these companies (with their multiple connections to virtually every income stream in the industrialized world) were pinched at both ends.

    Please alert me if you require more specific examples, and I will provide you with links (as there are literally thousands).

    You were, I think, trying to come around to a couple of important points in your comments that I am in agreement on. The “cheap money” that Alan Greenspan’s monetary policy injected into the economy did feed the asset bubble, and the moral hazard created by IMF bailouts internationally and the U.S. bailout of the savings and loan industry was certainly a contributor to Wall Street’s naughty behavior.

    Thank you again for your comment Robert.

  5. @Robert Glendenning
    Progressives did implement their policies and we had the golden age of America in the 50’s through 70’s when we generally did follow the Constitution. Then Conservatives came to power and in the last 30 years you see all the problems. The military-industrial complex, the prison-for-profit industry, perpetual war, the war-on-drugs, the war on the public institutions. None of those are progressive values! All of these are from the last 30 years of Conservatives! What do you guys think Progressives stand for anyway? *Everything* you say you are for *is* the “Progressive Agenda”. The fair, efficient, effective, and non-burdensome operation of Government, that’s what it is about.

  6. Personal liberties are reserved for the wealthy. It is the wealthy who create jobs for the working-class slobs so regulations are not needed at that level. The fewer the regulations, the cheaper industry can sell their products. Take the Food and Drug Administration. If we get rid of it, we won’t have government standing in the way of all those great pharmaceuticals that could help sick people. Sure, we might lose a person or two along the way, but that’s just survival of the fittest at work, right? The government has no purpose in any part of our lives except in moral issues.

  7. I have to disagree with your premise that there was de-regulation in the Financial services arena. You will need to give specific examples of what they were not allowed to do before this so called de-regulation and what they can now do differently. I don’t believe you will find a specific example. What you will find are specific examples of government bailouts which set a precedent. Large financial fims took greater and greater risks because they were enabled with a government cheap money policy and they knew if they failed, they would be bailed out.

  8. As a consequentialist libertarian, I read your article in great interest, but I was disappointed. One problem here is the lack of economic education, specifically lacking the knowledge of unintended consequences and opportunity cost. Just a superficial rebuttal to your points.

    1) Food and Drug
    a) With regulation, consumers have fewer choices which are often not available due to foolish reasons. Many patients with terminal illnesses for example, cannot get medicine in any manner due to the FDA.
    b) I’m not opposed to certifying organizations. I merely think that the government is horrible at it. Private certification would have the right incentives to work more effectively for consumers.

    2) Unions
    a) How many libertarians would disagree? Freedom of association would be far stronger in a libertarian society. If workers wanted to form a union, they would be able to. On the other hand, employers could contractually obligate workers not to join a union. The confusion seems to arrive from the strange notion that workers have no power and that bosses have all the power. Why do we not have this argument about sellers of any other good besides labor?
    b) In practice the libertarian society would probably not be very unionized. However, if one studies the economic impact of unionization, what it does is benefit the unionized workers at the expense of the ununionized workers.

    3) Finance
    The fallacy here is assuming that deregulation caused the crisis. If one studies business cycles one sees that they are caused by monetary expansion, not capital markets themselves. Also, the current crisis was largely caused by collusion of banks and rating agencies, which were cartelized by government.

  9. Great discussion friends:

    @Tommy…thanks as always for your opinions, our debate makes this project fun.

    @John…perhaps you could discuss the non-aggression principle, as it pertains to this theme, in a comment. I appreciate a diversity of views and depth to the discussion (so long as you don’t mind the occasional sharp retort).

    @James…Fannie and Freddie were not forgotten, they (along with the privately-held and rarely mentioned other members of the secondary market) are part and parcel of the lapses at the end of the last century and into this one.

    @Robert…The size of federal government, as a percentage of GDP, has declined over the last thirty years. It is during this same period that we have lost our manufacturing mojo…the debate is whether there is a correlation between the two facts. It is worth pointing out that the economic dominance of the United States, on the world stage, that happened between the end of the Great Depression in 1938 and the end of the century, is marked by massive top marginal tax rates and unions with much more power than today. Again, the debate is related to correlation.

    Keep your comments coming, don’t be shy, and to all of the new voices…welcome to The Rational Middle!

  10. Minor problem: Progressives have implemented the majority of our government over the last 75 years, and we nevertheless have all of the problems their laws were supposedly designed to prevent, e.g. regulatory bodies that protect the regulatees, lots of perverse consequences of laws and regulations, a huge military-intelligence-police-prison industry and perpetual war, various perpetual wars on drugs, terror, obesity, and public institutions that are failing — education a great example.

    Additionally, our economic growth has been the inverse of the growth of gov, which is normal in every country. We now don’t produce enough jobs for our young people.

    What have Progressives fixed?

    Laws and regulations are programs for society. As a programmer, I know how much testing is required for even small problems. Congress puts out 10,000 page laws with zero testing, so perverse consquences are inevitable.

    Minimum government worked — the US had a golden age when we followed the Constitution. We are in trouble now precisely because we don’t follow our own Constitution, which was and remains the best technology of gov ever invented.

    That technology can be improved via amendments that put teeth into citizen pushback against anti-constitutional actions by our gov, elimination of the gov’s role in currency, ability to borrow, …

  11. “The conflict not addressed, that personal liberties of diverse peoples necessarily conflict with one another, is the conflict that we resolve via a government.”

    The diverse wants and goals of this vast country were solved with the concept of state and local governments having most of the power to write laws, and nearly all the power to enforce those laws. If someone doesn’t like the laws that are approved by the majority of the residents, then they can move someplace where they do share more in common with the other residents. The federal government’s role is to make sure the states don’t become economic isolationists, to act as the arbiter of weights and measures, and to speak for the states when dealing with other nations. Concentrating power with the federal government is the danger because it limits an individual’s ability to move away from what they consider offensive.

    As the arbiter of weights and measures, I don’t have a problem with a lite version of the EPA or the FDA.

    “I am struck by the idea that the liberties of individuals who own or attempt the ownership of business, are more important than the liberties of those who only seek roles as worker/consumers.”

    The class distinction of workers vs. owners is a common liberal position. Workers are business owners. Their business interests are in selling their services to the highest bidder so that they can expand their area of influence and affluence, namely their family. Business owners are workers. They pay themselves a salary, when they can afford to, and generally put in many more hours than anyone they hire. Financially, everything is at risk for both parties. If the business fails the owner files bankruptcy, and the worker is left without a job, possibly facing the same fate. Liberals like to rev up workers because there are more of them, and it’s easier to convince them that they’ve been victimized.

    The general liberal retort to the concept of limited government is, what would it look like if there were no government. Most of your post is based on that black-and-white argument. I’ve said this before. Liberals tend to have a dark view of human nature. They’re afraid of people’s free will. They’re afraid of what unrestrained people will do.

    Life is a mirror. What a person sees around them is what is inside them. If a person sees the world as dark and corrupt unless restrained, they secretly believe that side exists within them. They’ll do anything to hide it, to control it, including writing lots of laws to stop people from doing what they fear they themselves will do.

    And no, that’s not exactly libertarian. It’s more Eckhart Tolle.

  12. A discussion of the non-aggression principle would have been helpful since it is a founding principle of the libertarian ideology and is crucial for understanding their positions.

  13. FDA -> Consumer Reports

    Unions -> OK so long as gov gives them no extra powers.

    Finance -> You’re ignoring Freddie and Fannie in housing disaster. Regulations protecting against fraud are OK any others are trampling liberty and are used by one corporation to reduce competition from another corporation which artificially limits consumer choice.

  14. (1) Perhaps the rally cry of the liberal conservatives should be: “no unions and no corporations.” Neither has a blemish free history, and if the unions must go (as Republicans are pushing), then so must the corporations. The balance between corrupt, greedy corporation and corrupt, greedy unions has served the common man well. But, having labor and business confined to two large powerful organizations does not balance well with individual liberty.
    (2) Government regulation in order to protect citizens from snake oil sales is good. But government tends to keep right on regulating until you have to hire an electrician to change a light bulb. My own issue with the infringement of personal liberty is with building codes – something many local governments adopt for good reasons, but these codes are private, copyrighted, and expensive. Thus the regulation creates a market for the law that is a barrier not to economic activity, but to the use of personal property. Example: putting a lighting fixture in a garage. The electrical is simple and instructions are widely available, but the finished construction must be to code, which incidentally, you can’t read for free even though it is the law, and you have to pay many hundreds of dollars to purchase the code. So a $100 electrical project to provide light in a garage becomes a $1000 project. How’s that for a regulating personal behavior?
    (3) Personal responsibility is critical to the success of the nation, but it is anathema to the success of large corporations. BP has killed or wounded hundreds of people and paid record fines, but not one person in that corporation has gone to jail. BP is not the only corporation involved in nefarious deeds. The corporation is used to protect the murderous decisions of human beings from the personal responsibility for the consequences of those decisions. IF a manager at a corporation makes a decision that causes death, maiming, or vast economic loss, that person is NOT held responsible, and what would be a devastating issue for a person is written off a “cost of doing business.” This is one of the primary problems with the current structure of the corporation. Unfortunately, we have seen that government regulations is NOT the answer to the problems we face because the implementation of the regulations are often subverted and perverted to suit the powerful corporate interests – this is entirely true for banking, finance, and energy.

  15. Libertarian Hybrid model- One part Conservative leanng towaard less Government, one part Liberal leaning toward individual rights. Conservatarism.

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