Wednesday, June 12, 2013

Examining some Libertarian ideas

E.J. Dionne angered some Libertarians with his piece “The Libertarian Problem.” Two of them responded with a link to the same piece “‘The Question Libertarians Can’t Answer' Part II.” Many years ago, The Comics Journal explained why they were reviewing what they felt was a poorly-written comic book. They said something to the effect of: “Every now and then we like to drag out some really poor example of the comics-writing craft and flog it for the amusement of our readers.” In that spirit, I'll review what the Libertarians have to say.

Only continued capital accumulation, which occurs when businesses may reinvest their profits in the purchase of capital goods without being expropriated by government, made it possible for the economy to become physically productive...

Actually, according to UK Public Spending, public expenditures for 1820 (in 2012 currency) added up to 57.5 million pounds, 17.1 was for defense and 31.1 for interest. In 1830, those were 53.7, with 15.6 defense and 29.1 interest. In 1870, 67.1, 23.4, and 29.1. 1890, when industrialism really took off, the numbers were 90.6, 33.4 and 24.5. Additionally in 1890, the UK government spent 8.3 million on their Postal service and 21.5 million locally on waste water management and the water supply, street lighting, etc. So no, the Industrial Revolution was not simply a matter of allowing capitalists to keep and then to reinvest their own money. There was also a good deal of public spending involved that made the Industrial Revolution possible. As Elizabeth Warren, now a Democratic Senator from Massachusetts said:

“I think the basic notion is right. Nobody got rich on their own. Nobody. People worked hard, they buil[t] a business, God bless, but they moved their goods on roads the rest of us helped build, they hired employees the rest of us helped educate, they plugged into a power grid the rest of us helped build."

From the Libertarian piece:

“Most of the government’s medical payments on behalf of the poor compensated doctors and hospitals for services once rendered free of charge or at reduced prices,” writes historian Allen Matusow.

Yes, that's entirely true, but keep in mind that when he's talking about what doctors once did “free of charge,” he's talking about the days when a person broke his leg, he'd fix it by breaking off a tree branch, tearing up his shirt, tying the branch to his leg, hobbling back home and then staying in bed until his leg healed. Nowadays we, as a society, can afford slightly more effective services. But those better services cost more, so instead of having the individual cover them, we transfer the costs to the larger economy, which can easily afford to pay them.

Yes, back In the days of the Model T, people realized that they couldn't simply peel off a couple of bills from a wad of money and cover a new automobile, so payment plans came into effect. Can we use payment plans for medical services? Not really, because we can't plan on having to pay major medical expenses the way that we can plan to buy a car. When we really need big dollars for big services, we're usually well past the age when we've retired from work and are on a fixed budget or we're in our last decade or so of work and can't reasonably expect to make much more money then we're already making.

It's a nice idea to try and make market capitalism apply to everything, but it really doesn't effectively handle medical expenses because a medical “customer” doesn't equal a car customer. They don't always just walk into a showroom with the money they need to buy services and are often in no position to compare costs and benefits of various forms of treatment. There's a reason we call them “patients” and not “customers.”

Dionne then says, “Smaller government meant too many people were poor.” This is flat-out idiocy. The greatest gains against poverty in the United States occurred when government was least involved. In 1900, the poverty rate by today’s standards was 95 percent. By the time the federal government got involved in poverty relief in a non-trivial way, in the late 1960s, that figure had already plummeted to between 12 and 14 percent...

Well, yeah, in 1913 until midway through World War II, average annual incomes were between $10,000 and $20,000, frequently staying close to the $15,000 mark. They then increased at a rapid, steady clip until 1970, at which point, they've been around $40,000 to $50,000. Obviously, a family in 1950 that's making $25,000 and that, just a decade earlier, was making $15,000, considered itself quite wealthy and probably considered itself quite wealthy in 1920, when they were making $18,000.

Poverty is not a solid, fixed status. Wikipedia defines a person who's living above the poverty line as someone who has adequate amounts of “food, water, sanitation, clothing, shelter, health care and education.” How do we define “affordable housing,” i.e., a decent, adequate level of housing? A person living in New York City or San Francisco is not going to define the term the same way that a person in Arkansas or in Russia's Ural Mountains or in Southern Niger would. “Poverty” is a highly subjective term that depends on a number of factors. In terms of just plain, straight numbers, yes, the poverty rate in 1900 was much higher than it is today, but that measurement is a pretty meaningless one. It's not just that inflation has risen, it's that there are many more things to buy, at a higher cost, then there were way back when.

Mainstream economics identifies monopolists by their behavior: they earn premium profits by restricting output and raising prices.

Now, there's certainly something to this if we look at Karl Marx's definition of monopoly. He begins by focusing on how concentrated an industry is, but then agrees with the Libertarians after that.

In 1904 large-scale enterprises with an output valued at one million dollars and over, numbered 1,900 (out of 216,180, i.e., 0.9 per cent).
Almost half the total production of all the enterprises of the country was carried on by one-hundredth part of these enterprises! These 3,000 giant enterprises embrace 258 branches of industry. From this it can be seen that at a certain stage of its development concentration itself, as it were, leads straight to monopoly, for a score or so of giant enterprises can easily arrive at an agreement, and on the other hand, the hindrance to competition, the tendency towards monopoly, arises from the huge size of the enterprises. (Emphasis in original)

The Libertarians make a strong case that monopoly wasn't really a concern during that period and that price-fixing was not a problem that anyone really worried about. So what exactly was the problem with economic concentration during the Gilded Age (From the Civil War in 1865 to the Progressive Era in 1890)? Well, companies, and indeed all sorts of groups, might compete in some ways, but might very well cooperate in others. Police officers from different cities may badmouth and disparage each other, but if a suspect flees from one city to another, the police will forget their differences and cooperate.

What is the major claim made by labor unions as to the service they rendered to the American people during the early days? It concerned an issue where the companies found it advantageous to be large and where they all took the same approach, it concerned labor conditions and working hours.

By the 1820s, various unions involved in the effort to reduce the working day from 12 to 10 hours began to show interest in the idea of federation-of joining together in pursuit of common objectives for working people. 

Later on,

Most industrial workers still worked a 10-hour day (12 hours in the steel industry), yet earned from 20 to 40 percent less than the minimum deemed necessary for a decent life.

Such lengthy working hours left employees enough time to eat, sleep and work and not much else. Why did it help for companies to be large? Because large companies could mechanize their work more easily than small companies could and could thus employ less-skilled labor. It was labor unions, combined with the New Deal and not inter-company competition that resulted in the 8-hour work day. It was when workers banded together and demanded a reduction in hours and when the national government agreed with them that excessive working hours were ended.

So yes, it was a bad thing for companies to control as much market share as they did, but not for the reasons that Marx and Dionne specify.

Finally, we read this: “And when the Depression engulfed us, government was helpless, largely handcuffed by this antigovernment ideology until Franklin Roosevelt came along.”

Well, it was actually the Supreme Court that put out the anti-minimum wage, pro-sanctity of contracts decision Lochner v. New York in 1905 and that reversed itself in 1937 with West Coast Hotel v. Parrish by ruling that Washington State could impose minimum wage regulations on private employers without violating the Constitution. It appears very highly likely that the Court took note of popular attitudes towards the sanctity of contracts and Roosevelt's influence can't be absolutely proven, but Roosevelt was certainly making his views clear that the Court was standing in the way of progress.

Yes, President Hoover came up with many good ideas, but that and a buck will get you a cup of coffee. Roosevelt was the president that actually implemented those ideas, or implemented them on a meaningful scale, and so he's the one who properly gets the credit for them. I don't agree with the Libertarian view of the Great Depression at all. I see the Depression as having been the result of a general systems failure and not just a trivial hiccup.

So, the Libertarians certainly make a couple of good points, but in general, I find their history pretty incompetent.