And by smaller government we mean...

I'm trying really hard not to dismiss the Tea Party out of hand. I think it's reductionist and unfair to regard its members as simply motivated by racism (though perhaps some are) or suggest that the whole movement is part of some fell funded Republican campaign (though some of it is). That being said, I'm having a tough time buying the argument that the Tea Party really wants smaller government. Take this recent New York Times profile of recently unemployed supporters of the movement:

"When Tom Grimes lost his job as a financial consultant 15 months ago, he called his congressman, a Democrat, for help getting government health care. Then he found a new full-time occupation: Tea Party activist...

Mr. Grimes, who receives Social Security, has filled the back seat of his Mercury Grand Marquis with the literature of the movement, including Glenn Beck’s 'Arguing With Idiots' and Frederic Bastiat’s 'The Law,' which denounces public benefits as 'false philanthropy.' 'If you quit giving people that stuff, they would figure out how to do it on their own,' Mr. Grimes said...

He blames the government for his unemployment. 'Government is absolutely responsible, not because of what they did recently with the car companies, but what they’ve done since the 1980s,' he said. 'The government has allowed free trade and never set up any rules.' He and others do not see any contradictions in their arguments for smaller government even as they argue that it should do more to prevent job loss or cuts to Medicare. After a year of angry debate, emotion outweighs fact."

Obviously smaller government would have less trade restrictions and fewer retraining programs for workers. In fact, one of history's most vocal supporters of free trade is Bastiat, who is required reading for libertarians. These are not small contradictions.

Of course these are just one person's views. But polls of Tea Party supporters seem to suggest similar inconsistencies. For example, a recent Bloomberg poll found that while 90% of Tea Party supporters fret that the US is moving toward "socialism", 70% favor the federal government fostering job creation. Further, half of those polled favored government restrictions on Wall Street salaries and their views were mixed about privatizing Medicare and other federal programs.

In fact the real gripe may not be the size of government, per se, but the perceived bias in policy. A CBS News/New York Times poll found that Tea Party supporters were more likely than other Americans to feel that "President Obama is working mainly on behalf of the poor, and not the middle class."

These polls pose interesting questions about the future of the Tea Party and what its impact on policy will ultimately be. Will the movement maintain its relevance when unemployment falls below 7%? Will deficit concerns impact legislation that largely benefits the middle class? (Note, that the 2003 passage of Medicare Part D, the hugely expensive but unfunded expansion of Medicare, met with no opposition from anti-deficit campaigners.)

Personally, I think the Tea Party will fizzle as the economy improves. While Americans in general are less amenable to large government than Europeans, the views expressed by Tea Party supporters don't indicate any large ideological shift. People are angry because times are tough and they feel neglected. But that doesn't mean we're headed toward some small-government Randian utopia.

Finding common ground between liberals and libertarians

Despite similar sounding names, liberals and libertarians are often at odds with each other. While the former favors a large welfare state and government intervention in the economy, the latter are loath to acknowledge any legitimate role for government. But as Bruce Bartlett points out, there may be more common ground than most think:

"On the surface, there would appear to be potential for an alliance. Libertarians tend to be liberal on social issues, favoring such things as gay marriage and drug legalization; and also liberal on defense and foreign policy, opposing the wars in Iraq and Afghanistan, and opposing torture and restrictions on civil liberties in the name of national security.

But libertarians are conservative on economic policy--favoring a free market with virtually no government intervention except the enforcement of contracts, and no government spending or taxes except those to pay for a very minimal police force and military.

Libertarians' views on social policy and national defense make them sympathetic to the Democrats, while their views on economic policy tend to align them with the Republicans. If one views social, defense and economic policy as having roughly equal weight, it would seem, therefore, that most libertarians should be Democrats. In fact, almost none are. Those that don't belong to the dysfunctional Libertarian Party are, by and large, Republicans."

Of course, Bartlett shows that these three areas do not have equal weight, as libertarians tend to emphasize economic freedom over all else.

For Bartlett, the dialogue between liberals and libertarians should involve each side conceding a little ground to the other:

"...many of the liberals persuasively argued that the pool of freedom isn't fixed such that if government takes more, then there is necessarily less for the people. Many government interventions expand freedom. A good example would be the Civil Rights Act of 1964. It was opposed by libertarians like Barry Goldwater as an unconstitutional infringement on states' rights. Yet it was obvious that African Americans were suffering tremendously at the hands of state and local governments. If the federal government didn't step in to redress these crimes, who else would?

...In return, liberals can learn something important about economics from libertarians. Liberals often turn to government to solve social problems simply because that is their default position. But often, there are private-sector alternatives that may in fact be superior. The rich diversity of America's states and localities shows there are many different ways of dealing with social problems that don't necessarily require more government."

"Liberalism", very broadly defined, is about promoting individual liberty and equality. But there are large differences within the philosophy. For modern American liberals, "equality" means a narrower distribution of incomes; for libertarians, "equality" means that everyone is free to pursue their economic interest, accepting a wide variation in individual outcomes.

Personally, I often find myself torn between these political views. I do favor a limited scope for government intervention, focused on expanding freedom rather than promoting traditional cultural institutions or engaging in social engineering.

Government should play a robust role in helping to alleviate freedom-reducing inequities in society; but we should also willingly acknowledge when government interventions in the economy privilege the few over the many, including regressive tax policies such as the mortgage interest deduction or the tax exemption on employer-provided health insurance. This is akin to Ed Glaeser's "libertarian progressivism", which is skeptical of certain government interventions because they favor the privileged over the poor.

Perhaps the key is avoiding falling in love with one's ideology. A dialogue between liberals and libertarians would involve the former admitting their great protagonist (government) is not always the best tool to enhance freedom, while the latter would admit that their great antagonist (government) sometimes is the best tool for enhancing freedom.

(HT: Mark Thoma)

Conservatives have a lot of Galt

John Galt, that is.

As Stephen Colbert explains, wealthy Americans are turning to Ayn Rand's "Atlas Shrugged" in response to the Obama administration's recent taxation and spending plans:

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Galt's character, disgusted by a government that heavily taxes the wealth producers in society only to waste their money on "moochers", calls for a general strike on behalf of the rich and talented.

Of course, it's tempting to draw comparisons to today. Barack "spread the wealth around" Obama is planning on increasing marginal tax rates on the wealthiest 2% in order to fund more generous social welfare programs and public goods.

But will this plan lead us to a Galtian world where the rich go on strike? In a word: no. Labor economists look at a measure known as the "labor supply elasticity of income", which is simply how much more people are willing to work if their income goes up (and conversely, how much less people are willing to work if their income goes down). The argument espoused by Michelle Malkin, Sean Hannity and other conservative pundits shown in the Colbert clip, is that this elasticity is high - if you increase taxes on the rich, they will decrease their labor by a lot, which will hurt us all. If high wage workers deprive the economy of their labor, then who will create wealth?

Empirically, this case is tenuous. For example, economist Robert Frank cites work by Fran Blau and Larry Kahn, who find that:

"the labor supply curve for men has been essentially vertical [which means a low elasticity] for many decades. The clear implication is that higher taxes on top earners, most of whom are men, will not significantly reduce work effort."

Similarly, Bruce Kaufman and Julie Hotchkiss, in their widely read text book The Economics of Labor Markets, survey the research and conclude that changes in tax rates during the 1980s did not cause large changes in labor supply, despite the theoretical evidence that it might.

Rand's novel is something of a libertarian version of The Communist Manifesto. The idea that high-wage workers will withdraw from society and form their own utopia is no less fanciful than the idea that low-wage workers will unite and create a socialist paradise.

Further, Atlas Shrugged may not be the best metaphor for our current situation. The popping of a $6-trillion housing bubble showed us that a great deal of wealth "created" by the John Galts on Wall Street was nothing more than an illusion. When financial assets were over-valued, so were the value of people who produce those products.

Ultimately, the lesson here should be one of humility. Consider what Will Wilkinson takes from the book:

"In the individual case, “going Galt” smacks of a kind self-aggrandizement in the same way that climate smuggery does. Because, really, your marginal contribution doesn’t matter that much...

By the way, Atlas buffs, the point of Atlas Shrugged is not that you are John Galt. The point is that you are not John Galt. The point is that you are, at your best, Eddie Willers. You’re smart, hardworking, productive, and true. But you’re no creative genius and you take innovation — John Galt — for granted. You don’t even know who he is! And this eventually leaves you weeping on abandoned train tracks."

Then again, if Michelle Malkin and Sean Hannity go on strike, you won't hear me complaining.

A response from Patri Friedman

In a recent post about Congressman Paul Broun's comments comparing Barack Obama to Hitler, I made reference to "Seasteading" and linked to an interview with Patri Friedman, one of its main proponents. The reference was really just a way of intriducing the topic of politicians saying and doing rediculous things. However, Mr. Friedman posted a comment that takes issue with how I characterize Seasteading:

"Compared to other industries, government is huge, inefficient, and slow to change. There is very little competition and innovation. If it was a minor area of life, this might not matter, but its huge! Why are you skeptical of the idea of improving this area of life? Isn't it the *most* important are for progression?

If I thought things could be fixed on land, I would be proposing an easier solution. Sure, its a weird solution - but if the answer to such an old and huge problem was easy, we would have found it."

I did not intend to be quite so flippant about Mr. Friedman's ideas. In fact, I think everyone should listen to his discussion of Seasteading with Russ Roberts on EconTalk. Friedman outlines a very extreme approach to the problem of poor governance. I do not feel qualified to comment on the technical and engineering challenges involved with Seasteading, but I would like to open a discussion on the issue.

Friedman's basic point is that poor governance stems not from the particular people in power, but from the incentives they face. So it's not a matter of throwing the bums out of office, but rather having a system where the bums' self-interest alligns with that of the public. One possible answer to this problem is competitive government. Government is the ultimate monopoly: barriers to entry are extremely high (imagine trying to start your own government) and consumer choice is very limited. If you don't like a particular store you can shop at their competitor; if you don't like your government, it's a lot harder to "shop" elsewhere.

By lowering these barriers to entry and increasing consumer choice and mobilty, better incentives for those in power will develop. Governments will have to compete for citizens by providing better services at lower cost.

Seasteading is an interesting and provocative idea. But whether or not you think it could possibly work, the critique of government as a monopoly is a profound one. If Seasteading accomplishes nothing more than a real discussion of these issues, it should be regarded as a success.