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Libertarians and Externalities


A blogger who goes by the name Angry Bear wrote recently, "The difference between a smart, honest conservative and an idiot: the former recognizes that externalities are a problem and there's some sort of a role for government in correcting them. The latter talks only about the beauty of the free market and property rights."

By externalities, he means unintentional effects on unrelated bystanders. For example, under the umbrella of the free market and property rights I might decide to start my own business and run that business out of my own home. So far, so good. But if that business is a night club, the noise and traffic and drunk people pissing outside will probably annoy my neighbors. If that business is a landfill, the stink and vermin will definitely annoy my neighbors. These annoyances are examples of externalities.

Annoyed neighbors might feel it appropriate to take matters into their own hands, but one reason we have a government is to give these annoyed neighbors a peaceful alternative for having their problems addressed. They can call the cops about the noise. They can call the zoning authorities about the unlicensed business activities. Where I live, in suburban Maryland, it is likely the government would take their side and shut down my business. A libertarian might be incensed at this ruthless government interference, but probably not if she were one of my neighbors ;-)

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The Libertarian Party requires each of its members to sign the following pledge:

I hereby pledge that I do not believe in nor advocate the initiation of force or fraud as a means of achieving political or social goals.

This pledge of nonviolence is a powerful draw for idealistic people to join the Libertarian Party. It has definitely been a draw for me personally during the past 25 years. To be clear, when Libertarians speak of "the initiation of force" they also mean government enforcement. Libertarians believe that the proper role of government, under this pledge, is to act defensively only, to use its enforcement power only after somebody else initiates the use of force or fraud.

The problem with this pledge is that it doesn't address the matter of externalities. There are ways I can annoy my neighbors that do not include the initiation of force or fraud. Not unless you expand your definition of force to include noise, light, smell, appearance, attractiveness to vermin, all other forms of pollution, and even potential unintentional explosions.

What if I operate a nuclear power generation business inside my home? Perhaps I could make absolutely certain that no unsafe materials escape my power plant, and that every precaution is taken while operating the plant and transporting fuel and materials. Nevertheless, let's assume there's a 1% chance per year that the plant will melt down and explode. I'm not using force or fraud to operate my business. If something does go wrong I'm willing to reimburse my neighbors for any harm that might occur ... but my neighbors did not sign up for the risk of a nuclear meltdown when they moved into the neighborhood. They would certainly ask the government to shut down my power plant. Even if I moved my plant to a remote location, the populace would want the government to regulate and inspect my plant to ensure that the profits I'm making are balanced by the risks I'm taking.

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Thoughtful members of the Libertarian Party will try to come up with careful solutions to externalities that do not require the initiation of force or fraud. But I doubt their neighbors will put up with such careful solutions. If the government does not appear to protect them, they will take matters into their own hands.

And that's the reason people generally have governments and put up with governments to protect people from each other, and from themselves. Protection sometimes requires the initiation of force to deal with externalities.

The libertarian ideal, as represented by the Libertarian Party pledge, simply won't work.

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People who think of themselves as libertarians often focus on a few pet issues instead of always advocating a libertarian approach to everything. They think the government should stop fighting the War on Drugs, or the War in Iraq. They think the government should stop regulating the ownership of personal firearms. They think the government should stop wasting tax dollars on welfare programs or busywork. They think income redistribution is unfair to the people who make the income and destroys the incentive to work. They think government control of the currency leads to inflation. They think the income tax system intrudes into people's private affairs. They think environmental regulations are unimportant or foolish.

As a group, libertarians usually think that government should be as small and unintrusive as possible, or that government itself would be unnecessary in a truly free society.

I am sympathetic to these thoughts. But there will always be some humans who have more power than other humans, and the humans with more power will always be tempted to use that power to make life better for themselves regardless of how others are affected or annoyed. If you put a bunch of dedicated libertarians in control of the government, disputes would still arise over whether they were governing too much or too little. For example, some libertarians think that downloading music should not be a crime. Other libertarians respect intellectual property rights. It is not always possible to get libertarians to agree with each other on how their libertarian ideals should operate in the real world. Every government, even one of Libertarians for Libertarians, will have its critics that it is doing too much or too little.

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Is Angry Bear right then? Are members of the Libertarian Party "idiots"?

Well, there is no idealistic political theory that will stand up to political realities. No government can properly regulate all externalities, and every government will regulate behaviors that have no externalities. That's simply the way life is. Wishing that an idealistic politics could work is not idiocy ... it is idealism. And everybody has at least a little bit of idealism inside. We're all idiotic from time to time.

The real question is what to do about politics, knowing that governments are imperfect, knowing that each of us is relatively powerless as compared to the government or the mob it often protects us from. That question is not so easy to frame, or to answer.


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