May 25, 2016

Seven Reasons Why I Lean Libertarian

Dollar Ribbon

Our daily articles this month at MarottaOnMoney.com are focusing on the ideas of libertarian politics. Last week I listed the first three reasons why I lean libertarian. First, centralized power in government corrupts. Less government power means less government corruption by special interests. Second, controlling another person’s life through force is inherently wrong. Third, government-supplied security is an illusion. By its nature, government cannot function in that role.

Here are four more reasons I lean libertarian:

4. Government monopolies kill innovation and efficiency. We are often fooled into thinking that only the government can supply certain things for us. For example, many Americans falsely believe the government is their only protection from major health complications. But if the Food and Drug Administration (FDA) did not exist, all the motivations would be in place for private enterprise to willingly step in and fill the need.

Therefore, the debate is not between certification of meat-processing standards and no certification at all. It is rather between government-run agencies that respond to the demands of special-interest groups and private-run groups obligated to respond to the demands of consumers.

Here is an example of a sector in which the government monopoly has been removed. When you want to ensure a letter or package is delivered, who do you trust to make sure it gets there: FedEx, UPS or the U.S. Postal Service? Before partial privatization, abolishing the Postal Service seemed crazy. Now it appears much more reasonable. Private enterprise can respond and offer whatever levels of quality assurance the market seeks with greater cost effectiveness.

Libertarians believe we should privatize education, retirement and most of the current functions of government simply because they are too important not to remain in our private control.

5. Many government-run agencies are inefficient, wasteful monopolies. Examples of such agencies are sadly plentiful. For example, the subsidized services for the poor may seem helpful, but these subsidies target specific services that the government assumes the poor want. However, like a well-intending distant relative buying a gift you do not need or want wastes his money, the government’s handout is accepted because it is free, not because it is the best use of money for the recipient. If given money instead of subsidies, the poor might not choose to spend as much on heating efficiency, school cafeteria food or graduate education. Even a small subsidy heavily skews a lower income budget. As noble as these intentions might be, it is easy to imagine families who would rightly choose to spend the money more effectively. These programs are in place because of the energy, farm and education lobbies.

The same is true for direct corporate subsidies. Oil companies are given tax breaks for ethanol. Millions are poured into failing solar companies. Farms are paid for limiting, not increasing production. And Big Education could not survive without the plethora of student subsidies.

As a result, these government-run agencies waste taxpayer money on projects of their choosing. They waste because, on the one hand, if taxpayers chose to support these projects financially, they would. Government involvement would be unnecessary. On the other, if taxpayers would not financially support these projects, then the government’s efforts are unwanted. In either case, this government spending is thus unnecessary or unwanted. Unless you believe those receiving assistance are incapable of acting well, money directly in the hands of lower income families would be better spent. I believe the cases where being poor means you are incapable of handling your affairs well are relatively few.

6. The costs of regulatory compliance are often greater than direct taxation. For small businesses the fixed costs of compliance are the greatest. Working with small businesses, I’ve seen the frustration of trying to determine the required rules, forms and procedures that take hundreds of hours of the owner’s time. One state required every out-of-state vendor to file to collect their sales tax even if their products were exempt from sales tax. A single state clinic wanted to buy their software. After dozens of hours filling out that paperwork, the owner was in violation every quarter for failing to file a form with all zeros on it. The single sale was not worth the regulatory burden.

Federal agencies are even worse. Getting a drug through the FDA approval process costs about $1 billion. The FDA has a great incentive to deny or delay a drug’s approval on the off chance that something goes wrong. As a result, only 21 drugs were approved in 2010. This number has been dropping from a high of 45 drugs in 1996.

Although the FDA costs the taxpayers $3.2 billion directly, it costs at least $21 billion in regulatory costs for those companies approved by the FDA. And for the graveyard of never approved but potentially useful drugs, the societal costs are even higher.

7. Regulatory compliance only means your paperwork in is order. In the financial world, Bernie Madoff had all of his regulatory paperwork in order. No one bothered to check if his paperwork matched reality. We pass feel-good legislation aimed at making people feel safer without actually assuring their safety. As with all legislation, lawyers put laws on paper without actually making the world a better place.

First they make it illegal to run a Ponzi scheme. Then they require firms to disclose if they are running a Ponzi in their annual filing. Then they make it illegal to lie on their annual disclosure. Next they require a designated chief compliance officer in the firm who will check that the firm’s paperwork is in order. And finally they make it an offense for the chief compliance officer to fail to review the firm’s compliance annually.

None of this impedes the few real crooks who are willing to boldly certify their own lies.

Compliance paperwork will not make cantaloupes safe. Nor will it make mines, deep sea drilling, or hedge funds safe. You will start to lean more libertarian if you remember this mantra: Regulatory compliance only means paperwork.

Reevaluating our presuppositions is never easy, especially not in politics where assumptions are worn like a second skin. I am not suggesting that Ron Paul is the best candidate for president, but he should not be dismissed out of hand simply because he suspects the FDA does as much harm as good. On that point (and many others I have heard him make), I think he is right.

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About David John Marotta

David John Marotta+ is the Founder and President of Marotta Wealth Management, Inc. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)

Comments

  1. Marvin Edwards says:

    1. People constitute a government to provide public services and protect individual rights. They delegate sufficient power to government to accomplish those ends. Each person gets one vote, regardless of their wealth. Whether government’s power is used for good or evil is up to us.

    2. (a) Tax policy, such as the mortgage deduction, are sometimes used to encourage choices, like home ownership, but it never requires anyone to do anything against their will. (b) No government program has ever required banks to make bad loans. Period.

    3. The financial crisis in 2008 was caused by the Libertarian Alan Greenspan. Greenspan fought the Commodities Futures Trading Commission (CFTC) when it attempted to regulate the shadow derivatives market back in 1998. Influenced by Ayn Rand, Greenspan believed that a free market would regulate itself. It didn’t. The financial collapse in 2008 can be laid at the feet of those espousing Libertarian ideology.

    4. Government monopoly? In what imaginary universe does public education prevent the creation of private schools? Or social security prevent private savings and investment for retirement? Or take your own example of the post office and UPS, Fed-Ex, etc. Obiously your argument is false, by your own examples.

    Eliminating the FDA? Please lookup “thalidimide” on Wikipedia.

    5. I’m sure you’re correct that government agencies are sometimes inefficient and wasteful. But it is illogical to leap from “sometimes” to “always”. And that is what Libertarian ideology does. Rather than presume some evil private lobby reaping the benefit, why not presume that a program is created for a specific public benefit and criticize it when it falls short? Libertarian thought is lazy.

    6. Same with the cost of compliance. If the forms are TRULY irrelevant and a waste of time, then it will certainly be obvious to everyone, and easy to fix. But rather than fix it, and face the possibility that you’re simply wrong, you blame it on “government”, when the problem may actually be you.

    7. Same with the point of compliance. Claiming it is all meaningless paperwork is simply irresponsible. Not to mention simple minded.

    Libertarianism is a bankrupt philosophy, fit only for those too lazy to participate in a democracy. It is a philosophy for old men who wish to defend the “Whites Only” sign in the restaurant window and who want a “legitimate” way to object to paying their taxes.

    • 1. You views would allow a 51% majority to do whatever they want. You assume that people’s only purpose in constituting a government is to “provide public services and protect individual rights”, but then people use government to vote the 51% goodies and oppress the 49%. Democracy without limits is morally bankrupt.

      2. Under the Community Reinvestment Act (CRA) Banks could have many of their actions essential to competition (mergers, etc.) denied if there were complaints about undeserved areas from community organizations (such as Acorn). Community organizations used these laws to blackmail banks into making loans they would not have made otherwise. To say that “No government program has ever required banks to make bad loans. Period.” is simply false.

      3. Former President Clinton and former former Federal Reserve Chairman Alan Greenspan indicated they did not properly regulate derivatives, including credit default swaps (CDS). It is interesting that you leave out Clinton and the CRA itself which allowed mortgages to be packaged into CDS. It is difficult in the morass of government rules to blame free choice when things go wrong. Any time you fix in place one part of the economy you make all the other free parts more volatile in response. That’s why government security is an illusion. Try fixing (by law) the price of Apple stock and see how crazy the market becomes in response. You can’t blame free choices when there are ten economic variables moving in balance to one another and you try to fix nine of them and then watch the tenth explode!

      4. Government’s funding of public education and refusal to fund any other type of education makes it so that a majority of parents choose the “free” government education over paying out of pocket for a better private education even if the money spent for the better private education is lower than the public price for the public education. The same is no longer true for the post office which is why they are failing as a result of competition.

      The FDA was formed in 1906. Thalidomide was introduced in the late 1950s and withdrawn in 1961. The FDA did not prevent Thalidomide. And Thalidomide would have been removed from the market even if the FDA had not existed.

      5. Government is always more wasteful than private enterprise because it lacks competition and market incentives. It is lazy thought to assume the best of intentions when human nature and human history teach otherwise. I highly recommend reading the chapter on “Politics” in Steven Picker’s book “The Blank Slate”.

      6. I’m assuming that you don’t actually fill out your own taxes.

      7. I’m assuming that you have not checked with the latest building codes to see if your home would currently pass them. I bet that your life is riddled with non-compliance. Do you *ever* go over the speed limit? Roll through a stop sign? What if you had to prove compliance in these issues? Would that make you a better driver?

      It never helps to call others racist in the opening letter of a dialog. Neither does it help to accuse someone (especially a columnist writing on public policy) of being too lazy to participate in a democracy. It is part of this mean-spiritedness that Hayek wrote a chapter entitled “Why the worst get on top” – chapter 10 of his book “The Road to Serfdom”. I recommend it to those who wonder why name-calling is a staple of the left.

      • Marvin Edwards says:

        1. “Vote the 51% goodies”? Is that really what you see happening? Dave, the problem with making laws is that they apply to everyone. There are no laws that only apply to 49%. The majority is subject to any laws and any taxes they create. Now before you jump down the “51% pay no income taxes” rabbit hole, keep in mind that everyone who actually owes taxes is required to pay them. According to the Center on Budget and Policy Priorities (CBPP) about 70% of those who owed no net income tax are the working poor who qualify for the Earned Income Tax Credit (EITC).Another 17% who paid no income tax are seniors on Social Security. The final 13% are students, the disabled, the jobless, etc. To become more informed, see http://www.cbpp.org/cms/?fa=view&id=3505 .
        2. And please see Wikipedia regarding the Community Reinvestment Act (CRA). They state unequivacably that “The law, however, emphasizes that an institution’s CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.” So, once again, I’ll say that no government program has ever required banks to make bad load. Period.
        3. Clinton is irrelevant. This is not a Republican or Democratic issue. This is a specific problem with Libertarian ideology. You echoed that ideology when you suggested free markets will regulate themselves. Greenspan knew Ayn Rand. And be believed the same thing. And it was the Libertarian error that caused Greenspan to fight Brooksley Born’s attempt to regulate derivatives from the CFTC, forcing her to resign.
        For more details, please see the PBS Frontline report “The Warning” at
        http://www.pbs.org/wgbh/pages/frontline/warning/view/?autoplay
        For even more details on the financial collapse, see the Senate investigation of the matter in the Levin-Coburn report at
        http://levin.senate.gov/imo/media/doc/supporting/2011/PSI_WallStreetCrisis_041311.pdf

        4. Many people who can afford private schools do use them. There are many successful examples in our area. Others feel their public schools are doing a good job and take advantage of them. Public schools are necessary because not everyone can afford to send their children to private schools.
        According to the Wikipedia article on Thalidimide, it was not licensed for use in the U.S. because Frances Kelsey of the FDA required further testing. Worldwide there were over 10,000 deformed babies born of expectant mothers using the drug. Ah, but you point out that eventually the drug would have been removed from the market even if there were no regulation. How many more deformed babies would it have taken?
        5. And, no, the government is not always more wasteful than private companies. I’m pretty sure that Medicare has much lower overhead than any private health insurance company. Say, how do private health insurance companies keep premiums low? Could it be with extensive rules and regulations that restrict coverage? Luckily, most doctors and hospitals do that billing for us, saving us from filling out the forms. My point is that regulations and forms are not solely a bane of government.
        6. I used to do my own taxes before TurboTax. I use it to get a nice printed copy.
        7. What’s your issue with compliance? Like most people, my driving speed is below the enforced speed (regardless of what’s posted). And I’m more careful at stop signs after a couple of tickets. If the only check on compliance was filling out a form, then more people would be non-compliant. That’s why it is clearly insufficient to rely upon self-reporting as the only means of testing compliance. Federal watchdogs cannot wait upon Madoff to report his own sins.
        Finally, it is always ironic when you call someone a “name-caller”. Especially suggesting that I somehow called you a “racist”. I’m quite aware that Libertarians voice a rejection of racism on the one hand, while using the “initiation of force” principle to defend the right of a restaurant owner to put a “Whites Only” sign in the window.
        I’ve even suggested to them that all they need do is correctly interpret the “Whites Only” sign as an initiation of force to avoid the implication. For what greater force is there than for a community to be able to deny a man access to all commerce, all ability to earn, and all ability to acquire property through trade, etc. But somehow they just don’t get it.

        Oh, PS, don’t forget to read Chapter 9 in “The Road to Serfdom”. That’s where Hayek suggests Medicare may be a really good idea.

        • Robert K says:

          1. Laws that favor(ed) the 51%:

          You can’t use marijuana, opium, LSD, etc.
          You can’t marry someone of the same gender.
          You can’t contract to work for less than some arbitrary figure.
          You can’t let your patrons enjoy cigarettes.
          You can’t buy ANY product at true market value.
          You can’t receive mail from anyone but the US Government.
          You can only hit your wife with a stick no larger than your thumb.
          A black man is only a fraction of a man.
          You have to pay for the education of children you didn’t choose to have.
          You have to pay double for education of your children if you don’t want them indoctrinated.
          You can’t have a gun legally.
          You can’t buy alcohol on a Sunday morning.
          You must pay for the retirement of those past 65 when it’s unlikely that you’ll reach that age.
          You must sit in a jury if told to by your government.

          It’s not just the 51% that screw over the 49%, it’s lobbyists of special interests that get their way as well.
          You have to pay for our nuclear power plant.
          You have to pay for a war.
          You have to pay for our love of wildlife.
          You have to pay for our corn.
          You have to pay us to not grow food.

          Need I go further? I take it that you will concede your point is completely destroyed, please recant.

          2. You say, “no government program has ever required banks to make bad load. Period.”

          Quote from the page you requested: “The Fair Housing Act and the Equal Credit Opportunity Act prohibit discrimination on the basis of race, sex, or other personal characteristics.” Statistics of past performance indicate a high correlation of these factors in certain locations with failure to repay. AKA a bad loan. So yes, they did REQUIRE banks to make bad loans. You may not approve of using gender or race or other personal characteristics in your decisions, but actuarial tables indicate that you should.

          3. If you think Greenspan’s actions were anywhere near in line with the Libertarian mindset or logic you’re smoking crack.

          4. You say, “Public schools are necessary because not everyone can afford to send their children to private schools.” And why is that? Because it’s not a free market, there’s a monopoly forced on us by the government that increases cost. Because children are forced to attend 12 years of it. Because courses that are completely irrelevant are required. Because people who want to pay for private schools have to pay double. Because there’s a union that has no opponent when it comes to negotiating pay or benefits. I could go on for hours if you’d like, but since I’ve destroyed that point as well, let’s move on.

          Regarding Thalidimide, you write, “How many more deformed babies would it have taken?”

          Far less in a free market solution. Let’s just take a look at the incentives of a free market vs. the government: A free market drug insurer has a huge amount of loss from a lawsuit if their client releases a product, this means they will hire the very best possible quality assurance personnel or company. A government agency tasked with the issue will get additional funds if they fail to catch the issue, because they will chant the same mantra that the government schools chant, “We didn’t have the necessary resources to catch it.”

          Also don’t forget how every American is indoctrinated in the belief that Government will take care of you which led users and proscribers of Thalidimide to do so with less caution than they would in a free market.

          5. Yes, government IS always more wasteful than private companies. Period. Do you really have ANY idea how incentives work? See #4.

          You say, “My point is that regulations and forms are not solely a bane of government.” which is correct. Inane, repetitive, unnecessary, stupid regulations and forms are innate to the government and foreign to the free market. Insurance companies that require forms that are too intrusive or overwhelming are discriminated against by their consumers, weeding out those that suck. How does the Government get rid of a bad form? They don’t unless it’s replaced with another one that’s worse.

          6. You’re not really suggesting that the huge amount of tax codes that we have aren’t overbearing because you find it easy for you to fill out your taxes are you? Do you have a business? Do you have employees? How many sources of income do you have? How many deductions? How many investments?

          Oh, and just one last thing. Taxation is theft.

          7. I’m hoping an officer of the law tells you to remove your pants and bend over so I can see how you like compliance. You don’t mind complying with x y or z, well I do. I want to be able to marry who I want, I want to be able to smoke what I want, I want to keep what I earn, and I don’t want someone threatening to murder me or kidnap me every time I don’t do what their stupid rules say.

          Regarding “whites only” businesses.” It’s called freedom, and if you REALLY believe in freedom, you have to respect the right of someone to do something you don’t like. For example, if we have freedom of speech, then I can say racist slurs without being kidnapped by men with guns wearing shiny badges. I wouldn’t because I’m not a racist, but I would have the FREEDOM to do it. People who act like asshats and don’t let blacks in their restaurants would be convinced to stop doing it by any one of these things: financial losses, peer pressure, public protest, old age. Lo and behold, younger people consistently have less and less racism if we don’t have some indoctrination camp called public education forcing them to think wrongheadedly. Somehow you don’t get what “freedom of association” means.

          Hayek wasn’t free from error, your point?

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