Defending against Libertarian Critics

Below, I defend my argument against a good libertarian friend of mine, whose post is accessible here.

No business owner forces anyone to work for him or purchase his product.  The state, on the other hand, can only exist through the use of force.

Yes, but no worker can live to escape his condition except if he became an entrepreneur, but this is quite exceptional. This concept does not exist in the US, but in many European countries, people would kill to be able to work for the government, where they are unlikely to be fired, and where social benefits are substantial. State coercion can be quite dangerous, but simply because you don’t like what the hand is doing, you will not chop off the entire hand, but will try to make it better. What the libertarians also don’t understand is that markets are created by the state. If he does not believe me he should tell me whether he feels safer doing business in Somalia (no state) or in the US (strong state).

The labor that is freed by increasing technology becomes available to be put to use in another, perhaps new, sector.  Because human desires are limitless (wouldn’t everyone like a personal masseuse, a yacht, a helicopter, a yacht upon which to land their helicopter, etc.?) the demand for labor is also limitless.

Yeah, that is the history, but what about the future? Where are the industries of the future? The frontier of technology carries few jobs. The managerial positions in banking and consulting have a more rentier function, and remain stable because they are connected with the powerful sectors of the economy. Most of the jobs today, especially for the lower skilled, are in retail, hospitality and health care industry, and even those are liable to automation.

Ever-increasing taxes, minimum wage laws, constant creation of artificial regulations, and bureaucratic red-tape all place huge hindrances on the market and is the true cause of a shrinking labor force.

These phenomena that he cites have a stabilizing impact on capitalist development as well as a destabilizing one, and he should perhaps consult Claus Offe’s work, which I summarized. He argued that the welfare state exists to make labor capable to be sold as a commodity, for if they were to receive less than a minimum wage whatever the equilibrium may be, he won’t survive and the capitalist would not have any more workers to exploit. The welfare state is also needed to guard against collapsing aggregate demand. Greece is much worse off in their economic crisis than the US, because they cut their pensions, while Social Security in the US remained the same.

But he is right to say that if the welfare state became too generous, it could undermine work participation, and the capitalist also would miss workers to exploit. The long-term historical development in capitalism is that the needs and requirements for the capitalist class is toward a greater state to furnish the capital investment (e.g. infrastructure, education of the population) and the consumption (e.g. civil servant salaries, or weapons purchases by the military). But, of course, the most developed capitalist countries tend to have the biggest state.

Does that mean that a bigger state causes less growth and jobs? It is hard to answer, but we would need to have a counterfactual of a shrinking state and a growing economy, and these libertarian dreamers have never shown me credible examples. Pro-austerity scholars have argued that Ireland and Latvia have slashed their public budgets in the 1990s and after the crisis since 2008, and have grown massively, but these are rather small economies which have export markets in the bigger economies, and 1/10th of the labor force left the country, which is quite a unique benefit. Most other countries have wisely not slashed their state spending share.

Inflationary monetary policies and artificial credit expansion create the unpredictable boom-bust cycle that makes the market largely unpredictable.  When markets are unpredictable, business owners will postpone or cancel plans for expansion.  Entrepreneurs will be less willing to take the risks necessary to create new ventures.

It is certainly true that monetary policy creates many of the financial bubbles that we have seen in the past and will see more of in the future, and I have voiced my criticism of central bank policy elsewhere on several occasions. But I am also of the view that without monetary expansion the economy would be even worse off. It is not the unpredictability in the market, which scares investors, but the lack of demand. It is the expectation of effective demand which steers investment decisions of investors. But where is the source of demand in an oligarchic economy, where so few private people own so much and so many living on their labor or those dependent on them own so little? It is the credit economy, the loan from the rich bankers to the poor workers, and the logical inability of the latter to repay the former with interest, which creates the fragility of the financial system. The central bank wants to paper over this contradiction by enforcing low interest rates, and bailout defaulting banks with huge loans, and we are all worse off for it.

But the question which we need to ask ourselves is the counterfactual. What would have happened if the central banks did not drive a credit bubble? The crisis of insufficient effective demand would have even earlier created the downward deflationary spiral, which this libertarian so awfully detests.

 First, any person who is providing a service through voluntary transaction is necessarily providing value.  If he wasn’t providing value, the person purchasing the service would keep his money and spend it elsewhere.  The decision to partake of the given service is made because the service is valued more highly than the money cost.

In his imaginary economy, every consumer has the full freedom to spend his money wherever he wants to. We can freely choose our banks, lawyers, consulting firms, tooth paste etc. Except that in an oligarchic economic system that free choice is certainly not there.

But for the sake of argument, I will accept that there are voluntary transactions. Is it fair that Mark Zuckerberg gets 45 billion dollars with his service getting more than a billion users, while his Silicon Valley food service workers get almost nothing? For the libertarian this world is fair, because Zuckerberg produced a product, which more than a billion people wanted to buy. If they did not buy it, he would not be so rich. The food service workers are producing a product, which everyone wants to buy, but it is easily reproducible, so there are many competitors for the same industry and job, so wages deserve to be low. That would be a market outcome, but not a “fair” outcome under considerations of social justice. A libertarian would ask his readers now whether social justice is more important or market justice? But that is why I think that this ideology should be exposed for what it is, namely to defend the status quo of extreme wealth and income inequality because it followed criteria of market justice. For people, who want to live in a more socially just world, this logic cannot apply, and calls for a basic income and higher taxation on the high earners is acceptable.

It should also not be forgotten that any invention cannot be the product of one individual, even though capitalist business propaganda tries to convince us this is so. Without the government developing the internet and the computer processor, neither Zuckerberg nor Jobs nor Gates would be where they are today. Without the software developers, programmers, or assembly line workers, they also would not be able to get their products on the market. The economy is an interdependent structure, and once we recognize that the accumulation of wealth lies in the hands of the few, who claim a product to be their exclusive private property, this fact should be suspect to anyone with brains.

Second, it is true that some of the professions he lists earn incomes that exceed the intrinsic value their job provides to society.  Bankers and financiers especially, and lawyers and accountants to a lesser extent.  These jobs are artificially protected and their salaries artificially inflated as a result of the workings of the state.  He correctly states that bankers and financiers “get government bailouts, which is not available to working class people,” but later states that these jobs should stop being produced altogether.  Perhaps, but ultimately it is the special state-granted privileges these jobs receive that should be eliminated.  Once that happens, the market can determine whether these jobs should exist, and at what salary.

To the extent that the state sets the framework conditions, e.g. bailing out banks and securing high salaries to bankers and austerity for the masses, he is right to say that the state takes its share of the blame for this huge inequality.

But I very much doubt that getting rid of the state would make things better. It was the hands-off position of the state, when it decided to reduce the burden of the tax system to regulate the incomes of executives in big firms that their incomes skyrocket in the 1980s. Libertarians argue that as long as their income increase derived from market dynamics, it is acceptable. But what is the “market value” in this example? No one needs a PhD in economics to understand it. (Quite the contrary, a PhD in neoclassical economics might even obscure understanding on this point.)

The escalating CEO incomes are preceded by the reduction in the tax burden on top executives. As long as income tax rates were high, executives decided it was better to keep most of the profits in the company and invest in plants and jobs, which tends to equal the distribution of income. When the marginal income tax was lowered, the penalties on redistributing corporate income to private executive income is lowered, so executives did just that. The shareholders also got a bigger piece of the pie, and now both the shareholders and executives conspired to raise the share incomes for the executives, and tie them to the stock market performance of the firm. That is shareholder value maximization, with the predictable devastating consequences for worker job security and wages.

In this situation, we actually need more and not less state intervention to ensure a more equal distribution of income. One can only imagine a weak state if a non-state actor is powerful enough to control the greed of the executives, and these were usually labor unions. That would be the case in Germany for instance. But the executives and government officials of course conspired to weaken organized labor, so there is no non-state actor, who can resist the greed of the executive class.

Libertarians believe that workers should keep every penny of their wages, while socialists believe workers should be subject to heavy taxation by an oligarchic government

Only the government exploits workers, not the capitalist. This assumption is entirely laughable. Of course, the government can be exploitative in their taxation, and I am the first critic of taxing people to pay for foreign wars where the working class people sacrifice their bodies and their tax money for the glory of their leaders. But taxation can also be used to pay for social programs, which are crucial for the self-maintenance of working class people. The surplus they contribute to their employer can also be used for the maintenance of the workers, because the profit is necessary to re-invest in the next cycle, so that the workers can keep their job. But a huge part of the surplus can also just be siphoned off, and there is no natural limitation as to how much profits a capitalist can make except the strength of organized labor and government regulations and taxes, and if we were serious observers of recent history, where excessive profits in certain sectors had become the norm, we know that limitations are absolutely necessary.

This constitutes little more than envy and greed.  It was the business owner who invested the initial capital to create the business, and who risked all of that capital solely on his belief that the venture would be successful; he had no guarantee that it would be.

For a capitalist economy to work, the business owner needs to make some profit or the enterprise does not happen. But how much is not subject to religious or natural law, but subject to the balance of power in society. Why should the workers, who are essential for the enterprise be content with self-limiting their claims on production? Why should a few capitalists become the new feudal lords, because of their excessive wealth accumulation? How can one person out of the sweat of his labor and his investment earn billions of dollars? This is not entrepreneurialism. This is called theft.

No business owner puts a gun to the potential worker’s head to accept the wage, and workers are always free to seek better and more lucrative employment.

There is a fallacy of composition in the argument. What is true for one worker cannot be true for all workers. In other words, one or some workers can get better training, better education, better networks, better jobs or better business acumen to become a capitalist himself, but not all workers combined. If the libertarian says that he does not care whether he creates good advice for 10% of the people or 100% of the people, then this assumption should be exposed, and we shall see how many people can grow to support this position. We socialists have always claimed that policies should serve all of the people, and not just a handful of people. The reader should judge for himself who is “right” or “wrong”.

Libertarians are morally correct to state that it is never permissible to own another person or their labor.

Only a blind person does not see the hypocrisy embedded in this statement. He states that slave exploitation is not permissible but wage slave exploitation is permissible. If you own a slave, it is owning another person’s labor. If you own a worker’s fruit of production, it is not owning another person’s labor. The workers at Foxconn should judge for themselves whether the Apple executives don’t own their labor.

 

As he has demonstrated, it is through the natural progression of human labor, ingenuity, and capital accumulation that increases in production have been possible.  Impeding this progression through the interventions of central planners can never be as efficient as what occurs naturally and is a large reason why mankind is still so far away from being able to provide a life of leisure to all.

Central planners are those which can bring about such a UBI scheme, but the author fails to point out whether the market will ever deliver on such a scheme beneficial to all, and if not then why not? Why should humans be slaves to machines, when machines can be made the slaves of humans?

 John Rockefeller once said, “I don’t want a nation of thinkers, I want a nation of workers.”  He backed up those words by giving over $180 million in 1902 to the government’s General Education Board which was responsible for huge increases in the power and scope of “government-mandated” schools.  The reasoning behind his words, and his purpose for such giving was simple.  He wanted his businesses to be protected from competition.  If he had workers who were also thinkers, the likelihood that one of his workers would start a competing firm and be able to produce the same goods more efficiently and cheaper was high.  Libertarians will be quick to point out that if there were no state, there would have been no mechanism through which he could have carried out these desires.

If there were no state, there would be no public education at all. If you had one country where the state does not mandate schools and many other countries which do mandate school attendance, I will be curious to see how well the state-less country will train and produce the talent to compete in the global economy.

The fact that people must eat, drink, clothe themselves, and have shelter means that one has to find a way to satisfy those needs.  The only moral way to satisfy those needs is to work.  It is immoral to take from someone else to achieve those ends.

That is if the scarcity principle still holds true. The point of the UBI scheme is that many jobs will be eliminated, so there can at most be a decreasing fraction of the population in the active labor force, and without government induced redistribution this will result in economic collapse. The second point is that libertarians talk about the immorality of stealing from somebody else’s labor, and are silent when shareholders and managers take the lion’s share of what the workers produced.

 

 

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6 Responses to Defending against Libertarian Critics

  1. Pingback: Power and Exploitation: Governments Vs Corporations - Emancipated Human

  2. Pingback: Public to Private: How City Water Could Work in the Private Sector - Emancipated Human

  3. Pingback: Public to Private: How City Water Could Work in the Private Sector | Jared Wall

  4. Pingback: Liberate RVA | City Water Provided by the Private Sector

  5. cwoverfi says:

    Fine arguments here, but, having a handful of formerly socialist-thinking friends who now espouse libertarian philosophies, I doubt it would change their minds at all. It does justify my own ideologies, in my mind anyway.

  6. Pingback: Public to Private: How City Water Could Work in the Private Sector - Emancipated Human

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