Is Libertarianism bankrupt after the banking crisis?’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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  • 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?

  • What Jock said.

  • Hywel Morgan 19th Oct '08 - 10:37am

    Now there’s a headline designed to provoke…. 🙂

  • 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!

  • David Heigham 19th Oct '08 - 1:14pm

    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.

  • 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.

  • Peter Bancroft 19th Oct '08 - 2:35pm

    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.

  • 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!

  • Peter Bancroft 19th Oct '08 - 4:16pm

    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.

  • Peter Bancroft 19th Oct '08 - 5:43pm

    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.

  • I’d ban three of those, and only suffer the use of “liberal” because it’s in the party name 🙂

  • 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.

  • Peter Bancroft 19th Oct '08 - 7:37pm


    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’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.

  • Richard Huzzey 19th Oct '08 - 9:07pm

    “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!

  • Richard Huzzey 19th Oct '08 - 9:41pm

    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).

  • 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!

  • 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!

  • 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?

  • 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

  • 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

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