In a recent blog post, George Mason University economist Tyler Cowen writes a tribute to what he calls “State Capacity Libertarianism.” I use the word “tribute” advisedly because Cowen doesn’t really make a case. Instead, he claims that libertarians should be State Capacity Libertarians, and settles for eleven assertions about what State Capacity Libertarianism is, while putting minimal flesh on the bones. This one post quickly received a fair amount of attention, notably from Nick Gillespie at Reason, Henry Olsen at the Washington Post, and John Cochrane at the Hoover Institution.
Cowen notes that he has tracked the libertarian movement for much of his life and so has observed its evolution. He writes, “Along the way, I believe the smart classical liberals and libertarians have, as if guided by an invisible hand, evolved into a view that I dub with the entirely non-sticky name of State Capacity Libertarianism.” (Bold in original). I don’t know what he means by “non-sticky” but, more important, has libertarianism so evolved? And is state capacity libertarianism superior to what Cowen calls “old-style libertarianism?”
No and no. The majority of modern libertarians are working within the broad framework of traditional libertarianism. Moreover, libertarianism, properly conceived, can handle almost all the modern problems that Cowen throws at it, whereas state capacity is fraught with danger.
You might argue that Cowen has covered himself by restricting the term to “smart” classical liberals and libertarians. But how would he, or we, determine who’s smart? By IQ? By accomplishments? Or would it be tautological: those who agree with Cowen are smart and the rest of us aren’t. I don’t know. So instead I’ll explain why I think Cowen’s charge against plain libertarianism is unfounded and why state capacity libertarianism is dangerous.
This is from David R. Henderson, “The Meaning of Libertarianism,” Defining Ideas, January 9, 2020.
Read the whole thing.
READER COMMENTS
Christophe Biocca
Jan 9 2020 at 7:22pm
That is indeed the problem. For every field of human endeavor in which government could get involved, there is both a sophisticated argument that the government could in fact intervene in ways that improve total welfare, and evidence that governments, in practice, intervene in ways that lower it.
Keynesian economics talks about the benefits of counter-cyclical fiscal policy. Actual governments spending/deficits essentially never go down during periods of growth.
Pigouvian taxes could be used to tackle pollution. In practice countries like Germany put in place green plans that increased CO2 emissions (and arguably Warren’s plan may well do the same if adopted). Canada’s actual carbon tax is the closest to the Nordhaus DICE recomendation, but even it falls well short of an ideal tax:
– It’s rebated lump-sum instead of being used to lower income taxes, worsening the tax interaction effect.
– It is higher than the optimum.
– It excludes the largest polluters, moving them to a different model for pollution (which tries to simultaneously keep a similar marginal cost on each ton of CO2 while exempting them from paying it on the bulk of their emissions, effectively rewarding them for being part of that group).
Pigouvian taxes could also be adopted in countries where there’s public healthcare spending, to align, to make people internalize the impact of their lifestyle choices on public spending. Except in practice the government taxes cigarettes even though smokers cost less than non-smokers in healthcare costs, choosing moralizing above efficiency.
There’s optimal tariff theory, but the actual tariffs governments impose have the economic acumen of 17th century mercantilism.
robc
Jan 9 2020 at 10:41pm
That reminds me of a Coase interview from the 90s. When he worked for Regulation, he tried to figure out how to separate the good ones from the bad. But he couldnt find one with a positive benefit. My theory is that we have so many that we ate past the point of diminishing returns and any new regulation has negative effects. If we eliminated 90% of them, we would be able to figure out the good ones that were left.
The problem is a state capacity problem…the state is too big to function.
Phil H
Jan 11 2020 at 9:05pm
I’ve been thinking about this, because it’s a really good argument. But ultimately I still think it’s wrong, and the reason is that something is better than nothing.
The mystery to be explained is that every developed country has a government sector that occupies about half of the economy. It’s always possible that everyone in the world has got it wrong, of course – it’s happened before! – but you need some good arguments.
Below, RPLong mentions rule of law, and I think that’s right. But what we seem to need is thick rule of law, not thin law. Lots of administrative processes give people certainty and comfort and room to work together, without quickly and easily opting for violence and social breakdown.
So even if what Christophe says is true, and in fact all government solutions are “making things worse,” that’s still, paradoxically, better. Because without thick government there wouldn’t be any “things” in the first place.
Christophe Biocca
Jan 13 2020 at 11:28am
I will say that most of what I regard as bad policies don’t show up as explicit government spending, but quantifying their scope is much harder (which is part of the issue, tax-and-spend is tangible and that makes bad policy easier to recognize and fix). “About half of the economy”. Not sure how much +/- you’re putting on there but I see 32.40% government spending/GDP for Switzerland, 32.26% for South Korea and 25.70% for Ireland. Hopefully these count as developed countries.
The other issue I’d identify if even if we treat this as evidence for the necessity of a government that spends a lot it doesn’t tell you what actual policies to adopt. And when you start looking closely, for each field of government involvement, you can find a country whose policy in that field is substantially less interventionist, and seems to work fine. You could get much of the way to a minimal government merely by picking and choosing from them. To give a few examples:
US-style lack of restrictions on speech.
Europe’s laxer/nonexistent speed limits and greater use of tolls to finance the highways (and France’s use of private companies to build/manage them).
Portugal’s decriminalization of all drugs.
Netherland’s legalization of prostitution.
The complete lack of tariffs of Hong Kong or Macau (or very-small tariffs of other countries if you see these two as too weird to count).
Japan’s “residential construction nearly anywhere” zoning and weaker eminent domain laws.
The lack of minimum wage laws of Denmark/Sweden/most of Switzerland’s cantons.
Thaomas
Jan 10 2020 at 7:13am
It would be more interesting to see on which of Tyler’s 11 points Henderson disagrees and why.
Personally, what he describes is pretty close to Liberalism: pro growth, market friendly but no opposed to redistribution.
Alan Goldhammer
Jan 10 2020 at 7:39am
I agree with this point. I thought Cowen’s post was pretty much on the mark.
Jon Murphy
Jan 10 2020 at 8:33am
Good stuff. My problem with Tyler’s post is two-fold:
1) “State capacity” is not really well-defined. He cites Noel Johnson and Mark Koyoma’s paper as background, and their paper is important and should be read by all, but even there it’s not clear to me what “state capacity” means. Johnson gave a talk when the paper was new and the big takeaway from the audience question was confusion over the “state capacity” term.
2) I’m a little perplexed by his discussion of classical liberalism as dealing with 19th Century problems. I see Theory of Moral Sentiments as still very relevant today, especially Smith’s discussions on justice and the jural superior/jural equal. Furthermore, I think Bastiat is quite relevant, especially Economic Sophisms and The Law. And can we really say that the discussion of Rule of Law by Dicey, Leoni, Hayek, Smith, and Hume has no place in today’s world?
RPLong
Jan 10 2020 at 10:42am
My most charitable guess as to what Cowen’s take on “state capacity” means is “Rule of Law” in the Hayekian sense. I’d guess that’s why his blog post dedicates space to intellectual property rights, clear rules for immigration, and so on.
I do think it’s a bad idea to apply a developmental economics term to today’s US government. A problem of “state capacity” in Bangladesh is that the government can levy taxes, but has difficulty collecting them in rural areas, and thus relies on a strict and privacy-invading banking system to police people’s financial transactions. There is nothing analogous to that in the United States, because the “infrastructure of state capacity,” if you will, is fully developed.
I also think writing a post like Cowen’s is odd, because it’s easy and concise to say, “I think libertarianism should focus on free markets, the Rule of Law in the Hayekian sense, and a strong but small government in the Madisonian sense.” See? I just said it in a single sentence. But then what purpose do all the other words in Cowen’s post serve, especially in light of his fondness for “Straussian readings?”
Jon Murphy
Jan 10 2020 at 10:47am
I think Cowen’s post is long because he is going a little beyond Madisonian government. Part of the point, as I see it, is that Madisonian government cannot handle many modern issues like climate change.
RPLong
Jan 10 2020 at 11:22am
Yes, absolutely agreed. And he’s argued for it in a rather opaque way. I thought David did a great job of conspicuously noting throughout his article the many things that Tyler Cowen did not say.
Mark Z
Jan 10 2020 at 12:45pm
I think Cowen’s essay would’ve been better if he’d focused on the couple issues where he has a point – climate change and taxation/redistribution, and stripped it of most of its more general, grandiose claims. I don’t see either of those two specific issues as nearly the fundamental challenge to libertarianism he does. Climate change is an externality problem, which at most justifies a Pigovian tax. Far from being a ‘state capacity’ issue, most libertarians would – correctly, imo – insist that the tax be revenue neutral precisely so as to prevent it from becoming a means to enlarge ‘state capacity,’ and keep it to addressing that specific externality. On taxes and redistributionism, I think he may be right that many libertarians overestimate the costs of these and their effects on incentives. But that doesn’t mean they should support higher taxes and redistribution; the costs are imo enough to warrant criticism, the implication is more that libertarians should maybe focus less on reducing tax rates and more on direct controls and regulations (I.e. reducing state capacity in other areas).
Other than on those two issues, I don’t think he has a point. His remark on education was genuinely confusing. A profound example of persistent state failure does not argue for more state capacity. Libertarians believe privatization is the best way to solve the problem, so why would they put their agenda on the back burner to help grope for an inferior, more statist way to solve it? I don’t see where Cowen presents a knockout rebuttal to Mises’s arguments in the ‘calculation debate’ or the public choice critique of state action, or explains why Hayekian knowledge problems are less relevant today. Why exactly does he think central planners have finally overcome these issues? Just because ‘libertarianism can’t solve some problem’ doesn’t mean the state can (or without creating worse problems in the process). That state-oriented ideologies and politicians claim to be able to readily solve the grand problems of their time, by throwing enough money at the right people, doesn’t mean they actually can solve them any better than libertarianism can. I think Tyler mistakes confidence for ability here.
Aaron McNay
Jan 10 2020 at 4:45pm
Reading the article, I think a big point of contention is defining what is meant by “state capacity” and what improving it entails.
In the Defining Ideas article, I had a hard time seeing exactly how David was defining state capacity. It seemed to me that David was defining state capacity as increased government spending or the scope of government. For example, the article says: “But even if it is true, one thing we know is that throwing money at it—oops, I mean increasing state capacity—is not a sure-fire winner.” At another point it also says: “But nothing inherent in the nature of highways requires that state governments, rather than private firms, build, maintain, and charge for highways. What we have here is a case of too much state capacity and not enough private entrepreneurship allowed.”
However, I don’t think Tyler is using the term state capacity in the same way. In the Koyama and Johnson article Tyler links to, it says this about state capacity: “In our view, state capacity does not refer to the range of services a state provides but rather to how effectively it is able to do those services it is responsible for providing.” Based on this, it seems like Tyler is calling for efforts to improve how well the state does things, not necessarily the scope. For example, let us go back to the two examples I refereed to above, education and highways. I think for Tyler, increasing state capacity would not be increasing state spending for government schools, but working on improving the current schools without changing funding. The same for highways and infrastructure. Again, not expanding the current system, but making it work better. This could be achieved by reducing construction costs or the permitting process. Yes, “governments, being governments, have been slow to implement tolls,” but improving state capacity might speed up this process and make the lousy system better.
It does seem David briefly touches on a potential issue with this by saying “A case could be made that it’s only when the system gets even worse that people will be more inclined to chuck the government system.” I think this sentence does the best job of bringing up a serious reason why improving state capacity may not be good. Moving our current horrible system to a lousy one may prevent us from moving to a good system. If so, improving the efficiency of how a state provides its services could be a bad thing in the long-run.
I could be wrong about how David and Tyler are defining and using the term state capacity, but this is how I read Tyler’s blog post and David’s Defining Ideas article.
David Henderson
Jan 10 2020 at 5:46pm
That could well be. He sure didn’t make it clear.
David Seltzer
Jan 10 2020 at 5:53pm
Does State Capacity mean government schools graduate less than half their students? Or engage in what seems like endless wars? Or a VA that struggles? I think classical libertarians are very clear minded on public goods and well defined property rights. It seems the founders were clear about public goods. Provide for national defense. Promote general welfare. I suspect others interpret this to mean “provide” for the general welfare.
It’s clear libertarians want be free to choose, accept that none of us has the right to coerce others of us and use the property in one’s personhood to produce. As each has dominion, jurisdiction and authority over their person and hence their property, I view State Capacity as a threat to those freedoms.
Roger McKinney
Jan 11 2020 at 11:23am
Nice analysis! Government has failed at everything, so Cowen wants more?!!!!
Todd Moodey
Jan 11 2020 at 6:25pm
Having read the post numerous times now, I conclude that it’s basically incoherent. Not in the sense that the meaning of individuals sentences can’t be understood but rather in the sense that the concept of a married bachelor is. I submit that if “state capacity libertarianism” makes sense, then “totalitarian libertarianism” makes even more sense.
The real meaning of the post is of course this: “I Tyler Cowen am making another of my now countless attempts to appeal to progressives as the “smart libertarian”, the one who understands that all that stuff really won’t work and that the purveyors of received wisdom need to run things.” Even his saying that he has “tracked” the libertarian movement for much of his life is a too-cute-by half nod to this strategy. He wants to claim the mantle of disinterested observer while not explicitly renouncing his libertarian roots.
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