Libertarians only have it half right

  • Posted on: 29 February 2016
  • By: Tim Harnick

When I discovered the OLP it was an epiphany. I am 60 now and hadn't felt such a rush since my first love. As I researched further the shine began to come off the apple. When I look back at my first love I now sing to myself, "she ain't pretty she just looks that way." To be brutally concise I feel libertarians disdain for big government power is to be applauded but they don't research the consequences of transferring that power to the private sector.

When I studied bank deregulation by Clinton I saw his first step was to eliminate a depression era Act called Glass Steagall. Before Glass Steagall banks could use depositor's money to invest for their own enrichment. If they bet poorly the depositors lost their life savings. Glass Steagall separated investment banking from commercial banking so if a bank became insolvent the deposits were protected. It was this way in America until Clinton.

The consequence of "laissez faire capitalism" permitted by Clinton has led to 5 large banks becoming "too big to fail." Even though they are technically insolvent the government through TARP bailed them out for $750 billion. Subsequently they were bailed out again for $4.5 trillion.They launder drug money, commit all sorts of fraud and are virtually untouchable. Even when the openly admit guilt they are only fined; a cost of doing business. No one goes to jail, even when they push whistleblowers out of the 32nd floor window of the bank.

So the cost of regulation was high I will admit but look at the cost of deregulation...almost $5.3 trillion and rising. When this house of cards falls the fallout will be worldwide and cost economies hundreds of trillions of dollars, social unrest, starvation and prolonged misery. Historically governments go to war when their financial systems collapse so American bank deregulation could result in the end of all life on earth ( nuclear war).

Capitalism is supposed to weed out individuals/ corporations that use resources poorly. Instead of letting the banks fail when they made poor bets on stocks, bonds, derivatives and securities using depositor's life savings they were recapitalized by the taxpayer.

This isn't capitalism.

There are countless examples of deregulation horror stories and they all end the same. Transferring power from the government to the private sector makes us feel good but ends terribly for individuals, their families and the economy. The private sector will do anything for this power.

Studies quoted by Stefan Molyneux from the Sunshine Foundation reveal corporate lobbyists get a $750 return on their investment for each $1 invested in government bribes and campaign contributions.

The stakes are high and the private sector is relentless in maximizing profit at the expense of the taxpayer. The government "regulators" are really executives from the private sector. Even with  "cronie" regulation the big corporations are rarely charged and no CEO goes to jail.

The other half that libertarians have to get right is to balance the power they relinguish to the private sector with public power that works for citizens. Lobbying laws and preventing corporate executives from assuming positions in regulatory agencies should be our first priority. As Thomas Jefferson said, "it should be illegal for any government to borrow." This would be another step to getting it all right.

This new approach will grab the ear of the unconverted. Many know our approach is only half baked.

Alter your platform to address this issue and we could quickly shoot past the conservative and ndp parties in my opinion.

Comments

Tim is probably right that Clinton's repeal of the Glass-Segall Act lead to banks that are "too big to fail." But i would point out that Glass-Stegall was not the first regulation of banking.  It was to 'fix' previous interference by government regulation.  Banks were not allowed to diversify by opening branches in other states, as Canadian Banks were.  This was led to local problems, like the drought which caused farmers to default on their loans, which in turn led to runs on the banks.

The libertarian solution is to look for 'customer regulation' instead of government regulation. after a few bank failures customers would want to know more about the banks they might patronize. The banks would want to assure then their deposits are safe. They might belong to one or more associations (like the Canadian Bankers Association) that would set standards and audit banks to ensure they comply, like the "Good Housekeeping Seal of Approval" or Mclean review of Universities.  Or Insurance companies might insure deposits (up to some limit).  The insurance companies would want to audit the bank's practices to limit their losses.  

I might also point out that it was the government that allowed investment firms to incorporate, which allowed them to transfer the risk of sub-prime mortgages from the partners to stockholders. We all know how that ended up.  

Tim complains,  "This isn't capitalism." He's right!  What he describes is "crony capitalism."  These are two entirely different concepts. Government should NOT be bailing out selected companies, or assisting them with favourable legislation and subsidies.  Unfortunately they do so because voters expect them to protect citizens from financial and other kinds of harm.Since legislators can now pass laws 'for the common good' companies and other organizations will lobby for legislation that helps them, thus the lobbying industry.  This huge return on investment occurs because the force of law can accomplish far more for a favoured organization than free market competition.  

Government has a monopoly on the use of force.  Thanks to socialist philosophy, government believes it is entitled to use force to benefit some at the expense of others.  The libertarian philosophy is that force should only be used to protect life, liberty and property from those who would take it from us,  I believe this is what led to Tim's euphoria on discovering the Libertarian Party.  At last, someone to vote for!.  But then he started to consider what would happen if we eliminated all government regulation and the idea of such a huge change is indeed frightening.  But we didn't get where we are all at once, and we won't get to a libertarian society quickly either. It won't happen until a lot more voters understand we would be better off with less government and vote for the Libertarian Party. 

Tim claims there are countless examples of deregulation horror stories and transferring 'power' to private organizations ends badly.  First, his example is selective deregulation, probably what the banks lobbied for,  Second, in a laissez faire economy, the only 'power' a private organization has is fickle brand loyalty. The only way they can maintain it is to provide the products and services the customers want at a price they are willing to pay.  It is the customer who has the power, not the company or the government.  Look at what happened when Bell lost its (government-granted) monopoly on long distance rates. 

Another positive example of privatization is Air Traffic Control.  Canada created NavCan 20 years ago.  It is a non-profit corporation with representatives of passengers, airlines, airports, pilots, and controllers on the board of directors. Instead of unreliable political funding, it charges user fees. It has been able to take advantage of new technologies like GPS and digital messaging.  Air Traffic Control in the USA depends on 1960s technology.  The US Federal Government is finally considering doing what Canada and 60 other countries did, because it is such an improvement.  

I don't know how we will get from here to there. Our current platform offers some suggestions. We would allow competition where government currently prohibits or discourages it. Maybe this kind of incremental change will be palatable to voters and will begin the process. 

Tim, the shine isn't gone.  It's just very hard to see through the years of accumulated government regulation.  To restore your faith, I strongly recommend Mary Ruwart's book, Healing Our World: The Compassion of Libertarianism. The subtitle is "How to enrich the poor, protect the environment, deter crime & defuse terrorism."