Slate.com’s Jacob Weisberg thinks so.
I suspect Lib Dem Voice readers’ answers will depend on how sympathetic they are to economic libertarianism.
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Hey, in 1936, after the Great Depression, Trotsky gloated at the triumph of the Soviet system which had seen huge growth while the Capitalist world had been suffering. He believed the Socialist were vindicated.
Of course, we know that this did not last (to say the least) and we know what happened to the two halves of Germany…
Those of us that believe this is the time to move even further away from free markets would be wise to learn the lessons of history on this.
Sadly I think I am in a minority.
You are a teensy bit unrealistic & hysterical if you think what has just happened is the first step to the gulag. Wouldn’t you say?
He invalidates his entire article to my mind with this:
“Utopians of the right, libertarians…”
Most Libertarians I can think of share my view that the banking system is state protected and coercive, operating like a cartel of private interests with the ability to inflate *our* money supply to *our* detriment. Regulation, de-regulation, none of it actually matters because we “wouldn’t start from here”. And in making calls for banks to be allowed to go to the wall what we actually seek is an end to this god-awful system and the opportunity to rebuild banking from more honest first principles.
It doesn’t surprise me one bit of course that people are looking for people, or whole ideologies, to blame for this mess, but I don’t see how the one ideology that has pretty consistently criticised the current banking system (since the mid-nineteenth century and certainly since the founding of the Fed in 1913) can possibly be the correct target.
The fact that they (eg Jacob Weisberg) don’t understand this about libertarianism seems to me to invalidate their criticisms. And if he thinks that only Randroids are libertarians, he’s just ignorant.
What Jock said.
…and there’s a big gulf between “deregulate so my mates can make more money” and “deregulate to create a fairer world”. Libertarians are no defenders of state sanctioned privilege. The “right” are, and always were.
Now there’s a headline designed to provoke…. 🙂
How something which is not in practice, which criticises many many aspects of the current system be held responsible?
On the contrary, libertarianism offers a set of critiques of the current system and the current situation which differ from the practices of the last hundred or so years.
Yes, just as bankrupt as it was before the crisis.
And, yes, the champions of over regulation are celebrating, but I don’t see what lessons this fiasco has for any sector other than banking.
Banking regulation is there to combat a particular moral hazard – that when looking after somebody else’s money, the incentives for taking high risks with it are all wrong.
Libertarians don’t have a solution to this, other than the wishful thinking that if there were no regulation, people would care about whether their banks were sound, and this concern would magically influence bankers to be responsible. A no regulation = perfect information fantasy.
Similarly we have lots of regulation of the pharmaceutical industry – we demand extensive and expensive clinical trials to show that drugs actually work. The libertarians would abolish all this and hope that pharma’s desire for a good reputation would do the same job. Something we might consider possible if the alt-meds industry didn’t exist, and if there were some magical way for anybody – pharma companies included – to know whether a drug works without doing clinical trials. Another no regulation = perfect information fantasy.
There are great problems with the regulation in both sectors, and it might be a great deal better if the debate didn’t always seem to be between those who want to pile it on, and those who want to pile it off, with nobody looking at the quality.
Yet regulation of pharma kills doesn’t it. An efficacious drug is held up in trials that could save thousands, maybe millions of lives in the period it is awaiting approval that “it works” and even then they can only “prove” it works in certain situations.
I think Fridman’s idea was about right – that the FDA and similar agencies should ensure drugs were not actually dangerous for the intended recipients rather than proving that they work. Their unrestricted use during the period that would currently be clinical trials would a. save more lives if they worked and b. prove they didn’t more quickly if not and get the medical/pharma industry looking for something else.
Then there’s the whole issue of intellectual property and patents which are also anathema to most libertarians. Removing state protection from pharmacological discovery as well as the obligation to prove efficacy rather than safety would mean pharmco fat cats could no longer sit on their extraordinary profits but would have to be more active in developing competing products that improved on their competitors’.
As to banking again, the main piece of moral hazard I can see is that bank deposits are not like other investments. They are denominated in legal tender and act as legal tender and so fall to the state to guarantee if something goes wrong with an institution manipulating our currency. Why should I, who have nothing but what’s left of October’s salary in the bank guarantee as a tax payer those who have saved more in something as unproductive as pixels in a bank’s computer? In a system that has lost 96% of the value of peoples’ money in the past 95 years? Whilst the pigs at the trough in banks’ board rooms have seen theirs grow almost exponentially?
You think that is a “smart’ system? THink again. It is ugly and benefits a tin, tiny minority of people at the expense of the rest of us.
If liberarians are the only ones to rail about that, good for them. The rest of you are walking blind to ruin soothed by the nice words of bankers and their political protectors.
Everybody is going to argue that the current economic probems prove that their theory is the right theory.
No Liberal Neil, I’m only going to argue that the current economic problems prove that some of the theories out there are false. (Popper’s philosophy of science by the way!)
Government rescued us all. This does not prove whether we should bring back Stalinism, or whether we should merely recognise that Government occasionally has a role. But it pretty much does prove that the completely hands-off self-regulating theory of libertarianism is bunk!
But it pretty much does prove that the completely hands-off self-regulating theory of libertarianism is bunk!
No. It does not. It proves that state protected capitalism is dangerous and unpredictable. (Did you read *any* of the previous comments or just Neil’s?)
And government has not rescued us all, at all. Government, governments around the world, haven’t really got a clue what they are doing, just as much as you and I. What they are doing is throwing the kitchen sink at the problem on the basis purely that we are told that inaction caused the 1929 crash to morph into a depression and so they do not want to be accused of inaction. Their actions may yet make things worse.
Without *radical* change, more along the lines libertarians have been calling for for a century and a half, they can barely make things better, since the entire system is fundamentally skewed in favour of GW’s “have mores” against the rest of us.
David Allen
We have not been rescued from the downturn in the real economy of the Western world. All we have been rescued from is a financial crisis that has made the real downturn somewhat worse, and would have made it into an economic disaster.
The financial crisis was largely the product of the authorities, for a number of years, not doing their job of regulating the financial markets properly. They did do the rescue properly, if late (G. Brown does not do things without havering); and they did it following the lead of the British Treasury.
The libertarian critique is valuable to us all because it challenges the impulse of all big organisations – Governments are the biggest – to do too much and take unneeded powers; and because it picks on the points where vested interests trample over the liberties of others. Maybe few libertarians have come to terms with the need for government to hold the ring – in the markets, and elsewhere – but at the political frontier the failure of government to hold the ring properly which led to the finacial crisis is a rare type of error. Much more frequently, the government is trying to meddle to the common danger; and the libertarians screams about it are well justified.
I don’t believe any of the bail-out has actually been agreed yet, has it though David? And one might suspect that with stories like £70bn bonuses and now Nomura screaming that the bits of Lehmans they’ve bought are obliged to pay huge bonuses to the executives they’ve inherited whilst it is not unwinding necessarily, it is certainly not what I would call a done deal.
In a (legal) system based on whatever is not explicitly forbidden is implicitly allowed, how can we have any confidence that “government” could have regulated, before or after, without either leaving sufficient loopholes for all those Oxford CMS grads to exploit with their clever spreadsheets and models to create a similar situation but with even more exotic “products” or over-regulating and making it impossible legitemately to insure against risks?
I can’t trust government with my identity; how can we trust them with regulating what is the most complicated set of interdependencies ever created by human ingenuity? I certainly would not want to go down the line of changing any part of our legal system to whatever is not explicitly permitted is forbidden.
Of course a “rescue” is not a cure. And the cure, when it is invented, like many cures may well make more people sick before it makes them better. If done well, it will rebalance the playing field in our favour, permanently. But not if it based on the current fraudulent fiat money-fractional reserve system.
It seems to me that blaming Thatcherism and Reaganomics is a bit out. I would have thought that the defining policy, if not the actuality, of that period was tight control of the money supply. What we have witnessed is it ballooning out of control on the back of speculative froth.
Joe Otten wrote:
“that when looking after somebody else’s money,”
Wrong. It’s the bank’s money. When you hand over your pounds, shillings and pence to a bank, title to that money passes to the bank. What you get is a chose in action against the bank, ie, a right in personam, not a property right.
One of the biggest cons the banks have succeeded in perpetrating is to persuade us that they are “looking after” “our” money.
Charlotte Gore reads like some kind of neo-Conservative fundamentalist if she thinks that the only alternative to libertarianism is Trotskysite Marxism.
In fact I wrote a similar thread in the members section of this website.
I wrote “Libertarianism fails the recession test”. The response I got from Jock was similar to what he has written here; that no one in power believes in the Libertarianism that he believes in, so it hasn’t been tried yet.
However what is the case is that in the 1980s there was a shift in economic orthodoxy from Keynesaian economics to Friedmanite economics (monetarism). It was during this time that Reagan famously said “Government is not a solution to our problem, government is the problem.”
That philosophy is pure libertarianism. Not that he actually believed it, and certainly not to the letter, but in many of his economic policies this was his guiding philosophy, as it has been for every US and UK government since.
Now we are faced with an economic emergency, and even governments that have previously signed up to this philosophy have stared into the abyss and concluded that “less government” has actually been the problem rather than the solution.
Vince Cable lead the way by calling for the nationalisation of Northern Rock, which as far as libertarians are concerned is a cardinal sin, but I do not see any calling on him to resign.
One hope for libertarians is that all this government intervention will fail, and that would prove they were right all along.
It may well fail, but that does not prove that by default they are right any more than it does that Marxism is right by demanding the nationalisation of the commanding heights of the economy with compensation.
We now know that the growth we experienced from 2001 to 2007 had little to do with the innovation of free markets, and much more to do with the illusion of wealth based on a housing bubble.
Such a bubble will not be allowed to happen again, and the moment that there is any sign of growth, that will be mitigated by rising oil prices that have slumped only because we are in a recession.
So from now on I do not see where any growth is likely to come from regardless of how you want to organise the ownership of the economy. South East Asia may be a different story, and their model of capitalism does not adhere to Friedmanite ideology and never has done.
What I will predict is that capitalism will not be overthrown but it will be different and in particular it will be more regulated, and no one will want to touch libertarianism with a bargepole for a very long time.
I’ve said time and again – the previous governor of the Bank of England, a government agency in all but name, explicitly stated that their policy was to ensure house prices kept rising – a form of inflation kept out of the inflation figures but which kept more and more money flowing in order to let us spend our way out of the last US min-recession.
Monetarism was never really implemented – if you remember the eighties were marked, in economic indices, by chopping and changing which measure of money Lawson and Lamont were targetting until they gave up entirely. How it was supposed to happen in a fiat money fractional reserve banking world, which most Libertarians anathematise anyway, is beyond me and even Friedman acknowledged that later.
Actually – what I wrote was more like that nobody in Libertarianism believes what you think Libertarianism is.
If you really honestly believe that the guiding principle behind central banking, manipulating the housing market, creating new laws to facilitate even more fraud by the banking system, and light regulation so our friends can go on a money making spree at the expense of everyone else let alone tax credits, section 28, ID cards and all the rest is “government is the problem” needless to say I think you are wrong!
Whilst I think that libertarianism is an irrelevent ideology, surely the current banking crisis strengthens their position rather than weakens it?
Libertarians were right that govt regulation doesn’t satisfactorally control banking, and they’re on the side of the majority in disagreeing with the govt bail-outs of the banks.
Libertarians were wrong before and they’re wrong now, but I can’t think how this would be anything but a step forward for them.
Liberalism on the other hand is potentially under attack – liberalism struggles to thrive in times of crisis & high unemployment.
“Charlotte Gore reads like some kind of neo-Conservative fundamentalist if she thinks that the only alternative to libertarianism is Trotskysite Marxism”
lol
Not a neo-con. I’m pro-choice, anti-death penalty, anti-church, against invading other countries, against an economy based on credit rather than industry and commerce. Being an economic liberal does not make me a neo-con, nor does it make me any kind of conservative at all.
But to address your accusation, the only alternative to a free market is degrees of Governmental control over resource allocation, from mild to absolute.
The more you believe Government always knows best, so it logically follows that you should want Government to have more control, because this will guarantee better outcomes overall.
But look at the way the banks responded to the credit crisis: They knuckled down, limited lending and began capital raising. They responded correctly the situation as they found it.
Yet now the Government is now trying to force banks to return to stupid levels of lending again. The ‘failure of the free markets’ here is not that people are in stupid amounts of debt, but that the banks are unable to continue feeding the economy with cheap easy credit. This is what Brown wants to fix, not the housing market pyramid scheme.
There’s been a huge bait-and-switch here, a massive M.Night Shalayman-esque twist. All you economic lefties are cheering Brown for trying to keep the ridiculous system we’ve been operating under during the previous boom.
So does Government knows best here? Government will ‘prevent’ banks from lending recklessly? They’re not doing that. They’re trying to reboot the same processes that caused this mess in the first place – credit secured against rising house prices.
You put far too much faith in the ability of Government to make the correct decisions, Geoffrey, or assume that if it’s the Government Versus the Banks that you should pick the Government’s side.
And any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.
Is he being serious? Does he not know how much regulation there is of the financial markets?
Sesenco,
I take your point.
“Wrong. It’s the bank’s money. When you hand over your pounds, shillings and pence to a bank, title to that money passes to the bank. What you get is a chose in action against the bank, ie, a right in personam, not a property right.”
Of course under the libertarian system of each bank controlling its own currency, you wouldn’t even have a worthwhile right in personam, if your bank chose to inflate its own currency away – which it would if the windfall profit from doing so exceeded the capital value of the bank. Reputation can be cashed in.
Jock clearly doesn’t understand the nature of clinical trials. There are no trials that don’t attempt to measure safety. Drug trials are about trying to determine whether the benefits (efficacy) outweigh the risks (safety). To do that, you have to measure both accurately. And accurate measurement or either means large trials. The larger the trial, the more likely you are to learn about unusual side-effects, for example.
Yes, some people suffer while awaiting the outcome, but others will be saved by avoiding toxic prescription. If only we knew the trial results in advance, we could short-circuit the process.
Furthermore, if drugs were available outside a clinical trial, who would enter a trial in which they may be prescribed a placebo? Without trials, we’d never know which drugs were effective, and we’d be back in the Middle Ages.
Joe Otten wrote:
“Of course under the libertarian system of each bank controlling its own currency, you wouldn’t even have a worthwhile right in personam,”
Under the “libertarian” system, you would have “market policing and adjudication”, which sounds rather like the law of the jungle. No thanks.
Sorry! I’ve been anonymised again!
I think that Charlotte Gore, Peter Bancroft and Jock should have the courage of your convictions and call on Vince Cable to resign, because logically you must think he made a terrible mistake in calling for the nationalisation of Northern Rock and for greater regulation of the market.
I personally do not have a dogmatic belief that either the market knows best or that government does. They both seem to have a chequered history and I don’t trust either of them. In the end you have to make a pragmatic choice depending on the situation in front of you, which is why I admire Vince for making good choices and not being blinkered by ideology.
Geoffrey, what are you talking about? Whilst I think Northern Rock should have been sold to Lloyds TSB, that fell through due to FSA/Labour meddling (who knows?), but with that opportunity past, the govt was right to nationalise Northern Rock. I’ve told you this at least twice already when I’ve been accused of believing various things that I don’t.
You are welcome to see everyone around the centre as extremists, but please don’t suggest people are saying the opposite to things they’ve actually said.
I would contribute more fully, but Jock has done it all for me. For what it is worth, here is what the UK Libertarian Party propose.
DK
DK, thanks for the link, I am rolling on the floor laughing.
The Libertarian Party wants to prohibit (!!) fractional reserve banking in sterling, and intends to enforce this policy using a great big government database!!!
This sort of thing has long been demanded by the “social credit” cranks of the hard left and hard (fascist) right, and various opponents of the international conspiracy of illuminati lizards.
But it is a bizarre reaction to the present problem, which is, essentially a massive voluntary reduction in fractional reserve banking by the banks themselves. If this is so great, just let it happen.
Peter, maybe I read this rather too quickly from you?
“Libertarians were right that govt regulation doesn’t satisfactorally control banking, and they’re on the side of the majority in disagreeing with the govt bail-outs of the banks.”
Technically you are correct, but Libertarians want less control by government of banking rather than more, and not many agree with that. And maybe the “majority” oppose a govt bailout, but that does not mean that doing nothing, which is what Libertarians would suggest, would be popular with the majority once the consequences of that policy are realised.
In short I think what you wrote was misleading, but I nonetheless stand corrected about what you really think.
I have never known anyone give a convincing explanation of how “libertarianism” would solve environmental problems. They either shrilly insist that there isn’t a problem at all so we needn’t bother (Devil’s Kitchen is especially “good” at this) or come out with some completely unrealistic nonsense.
Now, I read the Orange Book & agreed with most of it, & I am still fundamentally against what people like Geoffrey Payne are saying. But likewise, I am against the fringe libertarians, largely because of the utter rubbish Susan Kramer wrote in the Orange Book & related attitudes.
They don’t have the answers, & because no form of environmentalism is compatible with “libertarian” ideology most of them make the rather convenient (for them) assertion that we might as well ignore the whole thing.
Most people here are concerned about environmental issues, but there’s no “libertarian” solution.
My words were only misleading if you choose to read assumptions into things. For example, when I say that I disagree with libertarians on the financial services and I say what they think – you can I assume I probably don’t think the same.
I’ve already taken you to task for thinking that simply “more” regulation would solve problems – the FSA, BoE and Treasury had more than enough power to close down securitisation. They simply chose not to because they didn’t understand that it might be a problem.
Unsurprising really, as most bankers who are a lot more intelligent, more experienced and with better resources didn’t spot it either.
In reality the world is more complex than the ridiculous “more or less”, left or right-wing choices that Labour on one side and the Tories on the other side try to provide us. One would hope that most members of the Lib Dems would understand that.
The term ‘libertarianism’ needs to be banished from Lib Dem discussions, I think. When a term means more than one thing (and this one certainly does), it means nothing. If we can’t all agree on what a word means then there is absolutely no point in having a discussion about it.
That said, there is a big question about regulation which does have to be addressed. It is a truism to say that good regulation is a good thing and as such it’s a pointless statement. We have to ask whether or not the regulation we get is likely to be any good. My gut instinct, knowing nothing much more about the financial system that the average curious-minded person, is that we should try to preserve the ability of individuals to act based on their own perspectives – regulations which work by banning, restricting or otherwise impeding commercial decisions are mostly bad. But this crisis is largely an informational crisis; nobody would have knowingly bought dodgy mortgage assets and nobody would have knowingly made the loans if they had thought that they couldn’t then sell that risky debt on. The reason that banks aren’t lending to each other is still a problem of information: they can’t trust what they thought they knew about each other’s balance sheets, and it will take a while before the dust settles enough for them to tell.
To me (with the caveat that I don’t fully understand this) it seems that regulation could helpfully insist upon much higher standards of information being provided about the quality of assets. I’d be asking some very searching questions of the ratings agencies who were happily encouraging traders to keep on buying distinctly dodgy debt on the strength of AAA ratings. It should not be possible for a crisis to just sneak up on everyone, where one day we wake up and discover that the mountain of valuable assets we’ve been using as the basis for lending has turned into a molehill.
Doing what I’ve just vaguely suggested would probably require regulation that doesn’t presently exist. Therefore I think that our debate should be about the kind of regulation we have; perhaps new regulations might even make some old ones obsolete, so those of us who want to see fewer regulations might be happy enough with that. But I say all of this with the knowledge that I could well be wrong about everything, and so could just about anyone with an opinion on this, though you’d rarely know it from how most people write.
“When a term means more than one thing (and this one certainly does), it means nothing. If we can’t all agree on what a word means then there is absolutely no point in having a discussion about it.”
Should we also ban the words, “liberal”,”left”,”right”,”progressive” and so on from lib dem discussions, too?
I’d ban three of those, and only suffer the use of “liberal” because it’s in the party name 🙂
That’s okay. I’ll continue to self-identify as a geo-mutualist in that case.
How ironic that a “liberal” forum decides it can’t understand one of its siblings, or maybe that should be ancestors, though!
Look what you’ve done Richard, stirring up unrest even from across the Atlantic.
For what it’s worth, Jock’s definition of libertarianism, which could be called other things, is in no way defeated by the CC. The idea that unregulated markets in unfree systems designed to benefit those already in it (Jock’s critique above) has been defeated.
To clarify, I’m not entirely serious about wanting to ban words. I’m just no fan at all of arguments on the internet which hinge almost entirely on the fact that different people interpret a word to mean different things. Some people have a negative idea of what ‘libertarianism’ is, and others have a positive idea, not because they really differ all that much in their opinions, but because they differ in what they think ‘libertarianism’ is. This makes for dull and unproductive discussion.
Rob,
I think you’re going in the right direction with some of the suggestions. Ratings agencies undeniably got it wrong, and it’s not unreasonable to ask whether that could be partly linked to the way they’re dependent on the companies they rate paying them for the priviledge.
Transparency is generally something to push for, and more can be done in the banking sector, but it would take more of an expert than me to suggest what. Sub-prime mortgages and their securitisation were transparent enough – satisfactory for 99.3% of the time, if you follow certain assumptions. Unfortunately someone laid out some pretty stupid assumptions when setting them out.
It was transparent to everyone that falling house prices would mean defaults – as a cartoon I saw recently showing 2 bankers talking said “well, poor people with poor credit histories can’t afford houses. Who’d have known?”.
I agree there should be more use of voluntary cooperation in friendly societies, charities, unions & what have you. In many individual cases, it could replace the post-1945 systems.
But the fact is that we brought in a welfare state, under a Liberal government, because private initiative was not enough then, & would not be enough if we did it now.
I really do believe the “libertarians” would have vilified Asquith & said he was set on marching us all off to the gulags, if they had been around in the years before 1914. But I admire him for leading us out of the Victorian nightmare.
I say no to the Daily Mail’s agenda.
I’m not really interested in arguing ideology or trying to define what it is or is not in any case, so this topic is a bit moot for me.
What is true however is that there is a financial crisis which is verging on turning into a full-blown economic crisis.
So at this stage I think it is important to restate the important facts, namely, that markets respond decisively to information and become volatile only when information becomes unreliable.
Because this is all about confidence the only way to restabilise the system is to increase transparency at every level, because that is the only way to restore trust.
I think the first thing which could be done is for the MPC to publish the minutes of its next meeting – at least then we’ll know what they are saying and we’ll be able to make our own judgements about whether we can have faith in the ability of the authorities to take the correct action.
With MPC minutes we will at least have solid grounds on which to base our own actions, no longer will we be reduced to reacting.
But the fact is that we brought in a welfare state, under a Liberal government, because private initiative was not enough then, & would not be enough if we did it now.
The welfare state envisaged by its Liberal author was never intended to supplant or stifle private initiative – the third of Beveridge’s three guiding principles.
It was only when the socialists got hold of it they really decided they knew better than everyone else and nobody should be allowed to deviate from uniformity.
Nonetheless, to link this back to the credit crunch and to the individualist anarchists and mutualists our health in particular is intimately linked with our prosperity – poorer people are more likely to be in need of health care interventions. The banking system conceived in 1913, together with the monopolization of land rents, create this endemic poverty.
Both systems need rebooting with fundamentally different rules of play to level the playing field and within a generation we would be spending a fraction of what we do now on poverty related health and education remediation.
The current crisis is, I suggest, the one opportunity I’m likely to see in my lifetime to do that. As Josiah Stamp said:
“Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again.
“However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in.”
…and especially…
“But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits.”
This wisdom used to be inscribed in our party’s economic understanding. Yet now you want to call those who continue to understand its truth, predominantly those of a tendency that dare not speak its name, crackpot right-wingers. Go figure.
“Look what you’ve done Richard, stirring unrest even from across the Atlantic.”
A little bit of debate’s good for a Sunday. Unlike, it seems, buying a bottle of wine on a Sunday in Connecticut. Which is illegal, meaning I have to take chocolates to my dinner host tonight!
How very Welsh liberal…:)
Apparently it’s the only NE state to retain its founding ban on Sunday purchase of alcohol. And hunting.
(One of these bans has a more direct effect on me than the other).
Well, there’s an opportunity for you – maybe you could do some booze running across the sound!
The defintion of libertarianism is I think very simple. If you agree with Roanald Reagan; “Government is not a solution to our problem, government is the problem.” then you are a libertarian.
Not that Ronald Reagan adhered to his own principles, but that is another issue.
A libertarian “solution” to the crises we now face is to do the opposite of what is currently being done by the current government and encouraged by Vince Cable.
That is, let the banks go under rather than bail out or nationalise. Deregulate further the financial markets, rather than regulate more.
Let the markets solve the problem and not governments.
Well these circumstances are a real test for libertarian ideology. The rhetoric of the US and UK governments up until recently supported the Reagan principle. But noone dare try it in a democracy because of the devestating consequences. This is a true reality check.
Just as an aside or post-script perhaps – here’s “The Austrians'” response to Weisberg’s article over at the Mises Institute blog.
No. Not deregulate, Geoffrey. Decouple. Regulatinig the current system is like being the prison warden trying to control the criminals.
I don’t think you would find many l-worders agree with your definition though. It is a positive ideology whose main principles are more about individual rights and responsibilities. But I would agree that many or even most l-worders would agree with that statement from Reagan. I don’t think that makes Reagan an l-worder, however, and his actions (running up the biggest budget deficit in deacdes until GW came along for example) prove that.
It’s kind of like saying that if one professes a belief in God one must, of course, be a Mormon.
Jock said “There’s a big gulf between “deregulate so my mates can make more money” and “deregulate to create a fairer world”.”
But if you deregulate, and leave everything to chance and market forces, how can you possibly control, or even know, whether the world will become fairer? Doesn’t all the evidence suggest the opposite?
“Government has not rescued us all, at all. Government, governments around the world, haven’t really got a clue what they are doing….. Their actions may yet make things worse.”
That’s like getting pulled out of the sea half-drowned, and then telling the lifeboatmen that they are a bunch of hopeless amateurs, who shouldn’t be out in terrible storms like this, and will assuredly come to grief on the rocks!
“You put far too much faith in the ability of Government to make the correct decisions.”
Oh no I don’t. I know full well that Government often gets it wrong. I also know that Government got something more-or-less right last week, and it was something very important. If we can’t just show a bit of simple gratitude for that, the voters out there will be entitled to conclude that we are a bunch of narrow-minded bigots who have been blinded by party politics.
There will be plenty of time to criticise our Government for their mistakes (such as their call for a resumption of excessive lending) when they start making them again!
But if you deregulate, and leave everything to chance and market forces, how can you possibly control, or even know, whether the world will become fairer? Doesn’t all the evidence suggest the opposite?
Yes, see my comment above in response to Geoffrey’s latest post – “decouple” is the better verb. As in decoupling retail and investment banking from the creation of the money supply. After that regulation will be much less of an issue.
That’s like getting pulled out of the sea half-drowned, and then telling the lifeboatmen that they are a bunch of hopeless amateurs, who shouldn’t be out in terrible storms like this, and will assuredly come to grief on the rocks!
Actually, it’s not at all like that. It’s the truth. I have it on good authority from someone who interviewed the new minister woman in the Lords putting the bail-out details together. He was told that they do not know whether what they are doing is right or will succeed; indeed they don’t know the extent of the problem. But they are overwhelmingly aware of the theory that crash turned to depression in 1929 because of government inaction. So this is literally a case of “somthing must be done and this is something” and admitted as much.
The interviewer in question made the point that for the first time in his (long and quite distinguished) career in this crisis with just a D at Economic A level forty years ago and some reading up more recently he is knowledge wise on a par with everyone he’s had to interview at this time.
I posted these links to Charlotte Gore’s blog earlier, but it might be worth to read what some leading libertarian blogs have to say about the issue:
David Boaz of Cato Institute (1)
David Boaz of Cato Institute (2)
Will Wilkinson
Tom G Palmer
Virginia Postrel
Johan Norberg (1)
Johan Norberg (2)
Johan Norberg (3)
Hit & Run, weblog of the Reason Magazine
Though not from a blog, This article by Richard Epstein might also interest some of you.
Could the moderator kindly save my earlier posting from the spam file? Thanks!
Joe Otten:
The Libertarian proposals are not the same as “Social Credit” – in fact I am deeply suspicious of all such ideas.
Elsewhere people have mentioned another string to the Libertarian bow – free banking. The proposals remove the prohibition on banks to conduct fractional reserve banking with their own currencies or even foreign currencies and it introduces a hard gold-backed currency in parallel to Pounds Sterling, while changing the focus of the BoE to be limiting currency inflation and not private inflation. I care not how it is done and if the means can be improved, then so be it. You focus on the means yet do not even acknowledge the ends.
Of course, you want to make a cheap shot and so disingenuously interpret this and, it seems, the entire concept of Libertarianism.
As far as the Libertarian Party is concerned, there is always a need for the Rule of Law in banking to combat fraud and misrepresentation, e.g. deposits used for lending will have to declare that openly, including risk of default, instead of the current “idea” where people are treated like idiots and a collectivist “deposit insurance” is imagined (it is not even funded yet!) so people can “rest easy”.
The reality is that anyone who criticisises
liberatianism at best is ignorant, doesn’t understand or more probably describes a liberatianism that isn’t recognisable to true liberatarians 🙂
That something so good should be so incomprehensible to so many people is a great mystery.
‘Liberatiarans’ are, and when it comes down to it. they are the biggest defenders of private property going. And inevitably, huge disparities in private property is a state sanction privilege. That is why depsite a supposed opposition to coersion, top of any Liberatrain list are the army, police and the right to own and use guns.
A truly libertarian society would not recognise the need for possesions beyond that which a person can use and carry themselves.
“A truly libertarian society would not recognise the need for possesions beyond that which a person can use and carry themselves.”
And what makes “Mouse” the authority to describe what a “truly” libertarian society would do?
Jock, I am sure it is obvious to you what you mean by preferring decouple to deregulate, but I find it leaves a lot to the imagination, and my Google Search does not come up with anything.
It you “decouple” the state from private enterprize, then by default you have removed the regulatory responsibilities of the state?
What my Google search does come up with is that Milton Friedman, who I notice you refer to with approval, has no inhibitions using the word deregulate, and in my experience in meeting Libertarians the same applies to them. Up until recently at least they saw it as very positive because it was about setting business to be free. I am sure many still see it like that, or they are no longer Libertarians.
Roger, these free banks would be like FarePak, right? Why would I ever trust my money to an institution that is like a normal bank but with none of the protection? One that could do a Farepak, entirely legally, and, presumably would, whenever the balance of deposits was worth more than the bank itself, which it generally is. You are suggesting a kind of bank that nobody has any reason to trust.
So, the irrelevance of free banking aside, how does your proposal differ from some flavour of social credit? (Many social crediters support a gold-backed currency). And Jock, do you agree with Roger?
And even if you do not appreciate the comedy, do you at least see the irony in the Libertarian (!) Party proposing to restrict freedom of contract, where that contract involves lending most of an amount of money entrusted to you for that purpose – i.e. fractional reserve banking.
Geoffrey, the problem we have is that through fractional reserve banking private interests, unaccountable to us, are perfectly legally capable of inflating the supply of money denominated in the same currency as that issued by the state on our behalf and on our credit. In essense this is no different from you or I getting a good colour photocopier and trying to produce fivers and passing them off as the real thing.
What is inflation? Literally it means to inflate the supply of money compared with the goods needing to be purchased with that money. Inflating the supply of money leads inexorably to price rises or, to put it another way, that the hundred pounds you have in your pocket will buy less. Since these latest “masters of the universe” (in the form of J D Rockerfeller jnr and J P Morgan jnr in 1913) persuaded the US to create the Federal reserve system (which I believe twelve international banking “aristocracies” still technically own, shareholder wise) our money has been devalued by 96%.
I am sure you can work out that such an arrangement *demands* regulation precisely because it’s *our* currency they are playing with. Yet as you will see from that devaluation figure it has never worked terribly well. It *robs* the ordinary person of their purchasing power of the just fruits of their labour.
“Decoupling” (my term) is the Hayekian idea that, to avoid private oligarchies having this power to devalue (steal) that which is issued by the state on our credit, in our name, and with our guarantee, these bankers have their own corporate currencies, and we choose who to save or borrow from based on their reputation as institutions, rather than my co-guarantee as a citizen/tax payer as is happening right now.
Once that is done, the regulatory regime could focus simply on, shall we say, “consumer protection” issues. MoneySupermarket.com and the like would have another line of business – trying to highlight which institution’s currency is most secure and so on. Since these banks would have to continue trading with each other of course, they themselves would be as good a barometer of their competitors’ stability and may even form mutual assurance systems or reciprocal arrangements to deal with countries or location where they did not have a physical presence. So Barclays would do a deal with, say, Union Bank of South Africa to allow you to spend your Barcs in South Africa, but only if they thought that UBSA was creditworthy/trustworthy enough – ie a business decision based on on that would preserve or enhance their own trustworthiness.
Joe – lots of groups have and continue to campaign for specie currency. In fact I don’t think Social Creditors actually do, since their system actually relies on the “National Credit Agency” or whatever they call it creating new fiat money to plug the gap between production and production plus interest on bank created money.
The LPUK policy does not ban banks from fractional reserve banking. It bans them from doing that with the state currency, the legal tender, which currently at least exposes us, the citizens and tax-payers to the sort of guarantee we are now seeing called in. Nor does it require a “super database” – it requires the banks themselves to know and be able to show the source of their deposits so that a sterling deposit – ie one of the currency issued in our name – may only be lent once and not used as the basis for the Ponzi scheme they now operate with us accepting most of the risk as it turns out. If they choose to, they could take in a sterling deposit and use it as their reserves for creating *their* own currency, but the citizen-taxpayer’s liability would be limited solely to the sterling deposit.
Yes, what’s happening now may be seen as a huge reduction in fractional reserve banking, but actually, when it all settles down, what they will have forced us to do is to issue more high powered money – state/Fed money backed by the citizen-taxpayer – such that next time this happens, the pyramid will be even bigger based on a bigger high-powered monetary base.
The thing is Jock, that although this “inflation” of the currency is permitted, it is regulated through interest rates. Modest inflation is therefore a public policy choice, that you may disagree with of course, but one that many support, and not something imposed on us by banking.
If people choose to stop “banking” as they are doing, issuing more fiat money would seem to be a reasonable response, and would not be too inflationary so long as the fiat money were withdrawn again when banking picked up.
I stand by my point that the LP policy is an arbitrary restriction on freedom of contract. Never mind whose currency it is, whoever that is it doesn’t mean they own every penny. This idea that if you don’t operate a currency yourself, you don’t own a single cent of it yourself (to the point of being allowed to trust somebody else to lend most of it out for you), seems a recipe for utter outright exploitation by the Farepaks, who will operate currencies, of the rest of us, who will not.
Of course there is also a kind of inverse-Farepak scam we should expect free banks to pull off. If a bank finds it has issued lots of loans and holds few deposits in its own currency, then by slashing the supply of that currency a bank may take its borrowers to the cleaners. Someone who borrowed 1000 Noddydollars at £1:$1Noddy may find that each Noddy$ now costs £100, and they owe £100000
Of course the LP is entitled to observe as many others do, that complete freedom of contract is occasionally counter-productive; against the, ahem, common good, or something. What a hoot.
“But it might be worth to read what some leading libertarian blogs have to say about the issue.”
That is so rarely the case.
“But if you deregulate, and leave everything to chance and market forces, how can you possibly control, or even know, whether the world will become fairer? Doesn’t all the evidence suggest the opposite?”
No – the opposite, rather. If you take a butcher’s at the World Bank’s Doing Business report, you’ll see that countries with the greatest regulation and obstructions to trade are those experiencing the most poverty.
Countries which liberalise, such as Botswana and Georgia, are experiencing extremely high levels of growth, allowing their people to escape poverty.
To quote from the report: “countries with burdensome regulation have higher unemployment rates and slower economic growth”.
Joe, conveniently for your argument housing, or more accurately land price, is not in the inflation figures.
M4 lending has been growing in double figures for a decade.
Neither of these are “modest inflation” though we do at least know that the former was unstated (and therefore not voted on by us) public policy.
The simple fact is that these two forces – monetary and land – assist in the concentration of wealth amongst a smaller and smaller group of people. If that’s public policy, I’ll be buggered sideways with a blunt root vegetable.
Joe, further to what Jock has said, one of the real issues is that people think they have their money on deposit, not lent out with a risk of default, not from the bank, but from the borrower. Our proposals clarify that.
As for Farepak, a strawman – the company gave the impression of being a christmas club saving scheme, but it ended up investing and losing the money. It was not transparent. It did not do what it said on the tin.
A massive difference between Social Credit and our plans is the fact that
a) we do not think we can magically issue currency at no impact to replace taxes, a prime plank of SC moonbattery.
b) we do not fret about “the gap”, likewise
c) we are not about using the money to redistribute or render everyone able to get a citizens’ dividend just for being alive.
d) I for one am convinced Major Douglas was misguided, i.e. wrong.
e) We remove the barrier to free banking. Social Credit requires central control and would in the end demand each and every transaction to be monitored in pursuit of the perfect response. New Labour are going in that direction.
It is about transparency. If money is on deposit, it is 100% reserve. If it is on-lent, the contract must show that to be the case, i.e. there is no legal right to “on demand” or even 100% of your money back (as they are investments).
…and if it’s a “Liberal” policy, we may as well all give up now – we will have utterly abandoned the wisdom of our ideological forebears and merged with the “management party” who has nothing to say about how life could be different and just seeks to manage our poverty.
As a mutualist I would also tend to favour the removal of limited liability of course which is corporate protectionism.
OK, Roger, this is a little more reassuring. Although, I don’t think a change to the small print of a current account contract will make much odds.
I agree that FarePak wasn’t transparent, but I do wonder how much transparency you should expect in a contract. You don’t put your whole business plan in a contract with one customer, just what you promise to deliver to them.
Jock’s suggestion of removing limited liability would go some way to addressing the Farepak issue, but opens up another can of worms.
What is wrong with limited liability?
If I freely enter into a contract with a company, I am aware of the limited liability and can take that into account.
You seek to impose the removal of limited liability, by force perhaps. That does not sound very liberal to me
It seems the ‘libertarian debate’ has three sides:
1) Libertarians
2) Those who have zero understanding of libertarianism or any of the arguments but love to slag it off.
3) Those who are trying to understand, but either disagree or haven’t come across particular arguments.
Those in group 2 (sadly the majority it seems) should sit down and seriously investigate – most of your criticisms are straw men or have been dealt with – especially those anti-market type criticisms.
You may find you agree, or you may disagree, either is fine, but just spouting off doesn’t help.
Those in group 3 – thank you for at least attempting to get to grips with things.
Libertarians in the LibDems tend to be the more left wing version too, we usually realise that the Tory ‘libertarians’ tend to be statists who want deregulation for themselves.
Asquith’s criticism about there being no way to deal with the environment in libertarianism – that is false, there is much work out there on environmental concerns from a libertarian viewpoint. Granted there is much to be done – but that does not mean there is not a cogent response based upon fact (whilst the facts are disputed – as they are in many cases – it is more difficult to proceed, and unfortunately people will choose the view which fits their priors)
Coming back to the financial crisis – anyone who thinks that the policies which led up to the crisis are anything to do with libertarianism has no clue about libertarianism.
I don’t think it proves libertarians correct (although it fits in with our view), what it proves is that the current system is not working. The argument is why. I think libertarianism provides the best answer, most of you disagree.
If I freely enter into a contract with a company, I am aware of the limited liability and can take that into account.
Find me someone to work for, buy from, sell to or lend that does not have this protection and I might accept your “freely enter into a contract with..”
You seek to impose the removal of limited liability, by force perhaps. That does not sound very liberal to me
What on earth is illiberal about repealing a law that protects capital against its workers, customers, creditors and its own stupidity?
Julian H: “Countries with the greatest regulation and obstructions to trade are those experiencing the most poverty.”
OK. Well, different examples point different ways. But I’d concede that yes, deregulation often does seem to promote economic growth.
Whether it also tends to promote greater fairness within the deregulating country is a very different question. Commonly not, I would suggest.
Given these pros and cons, I wouldn’t slavishly support either very strong or very weak regulation.
What I really can’t support is an impenetrable theory, based on supposedly nil regulation, whose proponents deal with the “Gordon Brown Superhero” issue by means of the classic Hitchhiker technique of pulling a towel over their heads!
Either you remove the option of companies having limited liability or you retain it.
If you keep the option, then companies can continue to use it and limited liability has not been removed which is what you are advocating.
If you remove the option, then you force companies to behave in one particular fashion which does not seem to fit the free market ideal of letting the market decide