Small "L" Libertarianism, Corporations and Regulation

Part of my job requires answering questions about our policies, ideas, and articles that come from the general public. Earlier this week, a gentleman wrote to complain about a blog post a colleague wrote about SCOTUS nominee Elena Kagan's jurisprudence in the abstract, and how that contrasts with the values Cato holds dear. I'm posting this to give those of you less familiar with my organization, our work, and our worldview a glimpse into how we think and why we think it. I was somewhat hesitant to print this because I didn't want it to seem as if I was beating up a straw man, but I think his questions are indicative of some common misconceptions about libertarianism generally. Further, I hope my response illustrates, if implicitly, the difference between libertarianism and what is commonly known as modern American conservatism.

Below is my (lightly edited) reply to his email, with his questions included verbatim.

Dear Mr. _____:

I’m replying to your email from May 10 [excerpted below].

First of all, thank you for reading Cato@Liberty and contacting us with your questions. I want to answer both of your questions fully, but would also like to unpack them a little bit so we’re on the same page.

1) How would you at Cato propose that a Libertarian Administration could make a transition from the present "system of government" in the United States to a Libertarian system without destroying millions of lives and organizations? I see that removing controls and regulations that were proven necessary over the centuries will [sic]

I noticed you used capital “L” libertarian to describe an administration of our liking. While it may be a semantic argument, as a 501(c)(3) organization, it must be said that Cato is a non-partisan organization and thus we do not align ourselves with the Libertarian or any other political party. “Libertarian” has become a sort of catch-all term for the general principles that we promote in our publications and other policy work. I know [the blog post author] prefers the term “classical liberal” to “libertarian,” but we all strongly believe in Cato’s mission of “individual liberty, free markets, and peace.”

To those ends, we support policy changes that remove legislative and administrative regulations that impinge upon the right of an individual to make a living for himself and those that unfairly redistribute wealth to the benefit of special interests. Indeed, the “libertarian system” that we propose is the quintessential American system: the system of government laid out in the U.S. Constitution. Today’s governmental leviathan is a far cry from the system of enumerated—and thus limited—powers that protect the freedom of every individual to live their life as they see fit. The transition could take a number of forms, but the wealth freed from wasteful governmental control would stimulate the economy to a much greater extent than any government “stimulus” plan could ever hope to achieve. It makes no sense to keep pouring money into agencies, however well-intended, that continue to do more damage than good to our country.

A fundamental concept of economics is that of “creative destruction”: those vocations and industries that no longer serve the economic interests of the community die away. If this essential process didn’t occur, we’d still be supporting candle makers and buggy manufacturers who were put out of business by the advent of light bulbs and automobiles. Unfortunately, our current system of government resists market forces and maintains inefficient and damaging agencies and enterprises—both public and private—ultimately to everyone’s loss. Bureaucrats who lose their jobs in any transition could be compensated for a time once their positions are eliminated—and even into retirement. It would still be cheaper and better in the long run than paying them to do what they do, which is often much more harmful to the economy and liberty than just paying their salary and benefits.

Beyond the jobs of bureaucrats, whom I would hope would join the private sector to do something useful for a living, I can’t think of too many people (certainly not “millions”) that would be adversely affected, let alone destroyed, by eliminating wasteful spending and onerous regulation. Those people—usually special interests with powerful lobbies—that rely too heavily on the government for protectionist policies (e.g., tariffs, regulatory barriers to entry, etc.) should become self-sufficient or suffer the consequences of maintaining unsustainable business models. So much of the regulation that is currently in place was written by, or for the benefit of, the corporations you address in your second question. That is what lobbyists do—they get government to bend the rules to their advantage. We, at Cato, don’t support legislation or regulations meant to benefit the few at the expense of the many. We are pro-market, not pro-business.

2) Do you all really believe that American Corporations, operating without controls, would treat their workers well when so many have proven otherwise?

Cato isn’t a large group of anarchists, so I can’t say you’d find scholars calling for an abrupt end to every regulatory regime in the country. However, there is a broad consensus that there is too much and we would like many of those regulations removed. I’m not sure what specific controls you are referring to, but I’ll take a stab at this, operating on some of the more common regulations that affect businesses.

The first thing that comes to mind is the minimum wage. The fact of the matter is that most people who are employed at minimum wage don’t stay on minimum wage for long because it is an entry level pay rate and, over time, they move off of that. It’s not as if a non-unionized manufacturer, for example, pays all their employees minimum wage from the time they are hired until the time they retire. The work-for-reward incentive works for most businesses, large and small, because even unskilled workers increase their own value over time. A raise in the minimum wage tends to exacerbate unemployment, as those workers at that wage are newer and/or marginal hires to begin with, so their positions are eliminated because they lose profitability. Businesses that compensate their employees better than their competitors attract workers and thus have a larger pool to hire from. This isn’t to say they are lavish with them, but if you’re an employee and you know you can get better compensation at another firm for the same amount of work, you would go to that other firm. Maximizing profits is about more than just making a product at the cheapest possible rate and selling it for the most you possibly can. (Think: Google.)

The second example I can think of is OSHA. Now, given recent events like the BP explosion and consequent spill in the Gulf of Mexico and the coal mining explosion in West Virginia, it would be entirely naïve of me to say that all American jobs are 100% safe. But, if you pay attention to both of those stories, there isn’t a lack of regulation involved in either of those instances. The same could be said for the banking, housing, and other financial disasters—it wasn’t for lack of regulation that these terrible things happened. It was lack of effective regulation. Yet, the politically popular move in the wake of each of these crises was to increase regulation, instead of implementing those that are already on the books. It doesn’t make much sense to increase the power of the people under whose noses all the ineptitude and malfeasance happened without holding them accountable. Yet, this is the typical reaction: increase the size and power of government instead of making the government work better. It’s insult to injury when the people for whom the regulations were intended to limit end up writing or otherwise heavily influencing the regulation to their own benefit to the exclusion of more responsible actors. This is what Public Choice economists call “Regulatory Capture.”

There are more examples, but I think this email is long enough and don’t want to bore you. It all boils down to this: we think the government is too big and, without adhering to the laws laid out in the Constitution, the government continues to grow, inefficiencies increase, and more money is wasted at the expense of individual liberty and the American taxpayer. I have also attached a PDF of a short pamphlet that Roger Pilon, Cato’s Vice President of Legal Affairs, wrote entitled “The Purpose and Limits of Government.” I think most of what we believe to be the correct way to reshape the government is outlined therein.

I hope this was helpful to you. Thank you again for reading our blog.

Regards,

JPB