Caricature of the libertarian, economist, statist divide

In my mind there is a simple distinction between the broad brush strokes of libertarianism, the underpinning beliefs of economics, and statism as statements for the scope of government. It goes like this:

Libertarian:

  • Market prices are a good allocation mechanism – therefore market prices make sense.
  • Initial endowment of resources is fair – therefore no need to redistribute initial endowments.

Economist:

  • Market prices are a good allocation mechanism – therefore market prices make sense,
  • Initial endowment of resources is unfair – need a democratic state to define what is fair and redistribute endowments.

Statism:

  • Market prices are a poor allocation mechanism – therefore market prices are not necessarily any good and pragmatic government shifts to prices make sense,
  • Initial endowment of resources is unfair – need a democratic state to define what is fair and redistribute endowments.
  • No particular reason that economists would view the initial allocation as unfair. We just provide the second welfare theorem in case others view the initial allocation as unfair. I’d rephrase to “initial allocation may or may not be unfair”.

    I’d tweak the libertarian one to read: “Initial endowment of resources is more fair than whatever reallocation would result from a redistribution conducted by any real-world state.” Lots of libertarians will admit all kinds of injustice in initial endowments; they just tend not to think it meliorable.

  • @Eric Crampton

    Hi Eric,

    I completely agree with your points – exactly right.

    However, my goal was to create a ridiculously simple caricature to illustrate the two main areas where the view of society differs in this framework – the allocation of resources and the initial endowment. Each category is meant to illustrate an extreme version – not the mean version of a given group.

  • goonix

    Good points Eric. A libertarian economist is simply more wary of re-allocative intervention than a non-libertarian economist. I don’t see the two as being at odds with each other at all (although I see Matt is taking extremes to make a point).

  • What do you mean by initial endowment? I ask because it seems like statists are more worried about the difference that results after a market economy is instituted (ie ‘unjust’ prices for labour), rather than before.

  • Initial “allocations” are neither fair nor unfair — and I say that as a libertarian. Initial “allocations” simply are what they are. (Morality, i.e., “fairness,” begins only what is done, not with what is.)

    The interest begins with not with “initial allocations” (of what, I wonder: skills? talents? daddy’s inheritance?) but with subsequent “allocations”: i.e., does one get to keep what one has produced, or not? Libertarians say: “yes.” Economists say: “it depends.” Statists say: “only if you beg.”

  • Of course this assumes a particular definition of libertarianism. I suspect it’s the American rather than the European model or maybe an economist rather than a poltical definition.

    But I really don’t know that’s true. Can someone enlighten me?

  • Matt — are you serious? This is bad libertarianism and bad economics and bad socialism.

    Let’s try this:

    HAYEK:

    Market prices are a non-optional information coordination system. The market process is a discovery process, it is not an “allocation mechanism”. “Market failure” exists, both in micro terms and in terms of money / credit creating the business cycle. Many attempts to “fix” market failure by the state make things much worse.

    “Initial endowments” of “resources” are neither far nor unfair. The market process and life itself have dramatic elements of “luck” within it, and any system without top-down rule governed “social justice” distribution regime doesn’t produce what can be called strictly speaking “fair” or “unfair” results. The idea of “redistributing initial endowments” is itself incoherent — wealth and value must be continually discovered, re-configured, and created. Part of it is genetically “given”, although not give any fixed position of value within an ever changing social order.

    I wrote this in about 90 seconds. How much thought did you put into yours?

  • Ok, I get it. These are caricatures — perhaps those which might be produced by people who don’t know what positions these people might actually hold.

  • empty

  • @Greg Ransom
    FYI, Hayek, strictly speaking, is not a libertarian. His views on such matters are quite different to those of most libertarians, at least academic ones. I don’t think Matt’s summary is too bad, as a caricature.

  • @goonix

    Indeed they are not at odds – there is actually a continuum of beliefs surrounding the appropriate “initial allocation”. The key point is that both sides very much agree that market pricing (accounting for social costs where need be) is the way to go.

    As a result, debates on this side will tend to be around “initial allocation” (a hard concept to think about in a dynamic economy)

  • @Tom M

    Indeed – good question.

    From the second welfare theorem we know that the government can move around initial resources however they want and then let the market run – and we will have a pareto optimal outcome. By doing that they choose a point that satisfies there conception of equity.

    In this case the economy is running – so the idea of initial allocation is vague. Simply put, it means that there is some allocation of resources which is not the result of individual effort and market action that differs from what society believes is fair.

    Even if things are all perfectly in place, random shocks can shift the allocation – and a central authority could in “theory” move the allocation back.

    It is justifiable for a government to have this role if society demands it – however, it is a hard role to define.

  • @Peter Cresswell

    I think the concept of initial allocations is what drives the main difference here though.

    Fundamentally, if prices represent the social cost and benefit and if information is available then we should leave the market untouched as an allocation device. But if one person has almost all the resources, it is possible that we could come up with better social outcomes if we were to perform a single lump sum transfer from this person.

    This is where Rawl’s idea that we want a society that society would want if they did not know what sort of endowment they would start with comes in.

    Of course – we can’t observe that, so we have to hope that the democratic process gives us some idea. From there we can treat social welfare as part of the social contract.

  • @Bill Bennett

    I think I would call it closer to the American definition – but it isn’t really a definition at all.

    All it is is a pointed caricatures merely representing extreme points in a broader sense of political beliefs.

    The Libertarian represent pure freedom from government in this sense – as our initial allocation is fair, and then any market based transaction will provide optimal outcomes.

    The “economist” believes in the allocation through prices as well – but tempers this by a belief that the allocation of resources can be struck by things like luck and a poor initial dealing. In this case, a society may want to transfer between the haves and have nots – but ultimately the idea of market prices is untouched.

    The Statist doesn’t see market prices as useful for allocation.

    The purpose of this divide was to express the debates I’ve faced against the left and the right over time. Generally, on the right it is an argument about the “fairness of some endowment”. On the left it tends to be around the effectiveness of prices as a measure of value.

    This caricature is a simple, but easy to observe, way to view this. It misses the subtles of differences in political schools – but it provides a clear indication of two major areas of disagreement.

  • @Greg Ransom

    Hi Greg,

    “The market process is a discovery process, it is not an “allocation mechanism””

    In a dynamic sense the discovery process is PART OF the allocation mechanism – there is no disjoint here. Thinking of the importance of the discovery process is important – but throwing it into our simple distinction would have simply muddied the water and added no value.

    ““Initial endowments” of “resources” are neither far nor unfair. The market process and life itself have dramatic elements of “luck” within it, and any system without top-down rule governed “social justice” distribution regime doesn’t produce what can be called strictly speaking “fair” or “unfair” results. The idea of “redistributing initial endowments” is itself incoherent — wealth and value must be continually discovered, re-configured, and created. Part of it is genetically “given”, although not give any fixed position of value within an ever changing social order.”

    I have no disagreement – but a society can decide it think different outcomes are fair and unfair, and transfer regarding it. Saying that it is hard to tell what is unfair or fair doesn’t mean that it isn’t an important issue – because given the current scope of government I would say it is something people care about.

    “I wrote this in about 90 seconds. How much thought did you put into yours?”

    I’m sorry if I upset you with my post – but watch your tone.

  • @Greg Ransom

    Greg,

    The point of a caricature is to identify a difference and then exaggerate it completely – that is exactly what I have done here.

    Generally, libertarians do believe that redistribution is less important than everyone else – by saying “it is neither fair or unfair” you are putting a much smaller weight on the issues importance than a lot of other political schools. As a result, I think that supports the above extreme characterisation.

    Statists generally believe that market prices don’t function properly, all the time, and all over the place. They think the allocation mechanisms that everyone right of centre discusses are oversimplistic. As a result, I drew a caricature of them being against market prices – this is also a gross oversimplification.

    However, by doing this I am able to illustrate the areas where the economists that write here, and other economists I’ve met, differ from these two schools of thought. By identifying where difference usually occurs it is easier to frame and discuss debates – and figure out what we disagree on.

    As a caricature I don’t think this is inaccurate – I wouldn’t use it to define libertarians or statist that I met, but I would use it to try and frame the area where our disagreement may lie.

    By doing so I would hopefully avoid personally insulting people – as you seem to be interested in doing here.

  • @Tom M
    “FYI, Hayek, strictly speaking, is not a libertarian. His views on such matters are quite different to those of most libertarians, at least academic ones. I don’t think Matt’s summary is too bad, as a caricature.”

    Libertarianism is a big tent. Hayek favoured some government action above the minimal state, such as a basic social safety-net, but I don’t think that should disqualify him. He was a moderate libertarian, to be sure, but I don’t think level-10 Rothbardian anarchists should be taken as the archetype.

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