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Thursday, May 23, 2019

A Challenge for Libertarians

Libertarians have a role to play in both American and European politics. However, in order to become relevant, they need to get their priorities right. That will take some work, some serious thinking and some real, deep commitment to understanding, working for and following through on complex socio-economic reforms. Do they have what it takes?


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In Andrei Konchalovsky’s 1985 movie Runaway Train, escaped convict Oscar Manheim (brilliantly played by Jon Voight) is so determined to never be caught again that he commits suicide, standing on top of an out-of-control train engine. As the train roars through a snowstorm, bearing down on a collapsed bridge, Manheim embraces the final moments in life as if he has been freed of all shackles.

Inside the train is Mr. Ranken, the only man who can prevent the disaster. However, he is handcuffed to a pipe and cannot reach the engine turn-off switch. All he can do is stand inside the engine and watch as it closes in on the inevitable.

It is rare that a movie with no politics in its storyline can be so reminiscent of current political and economic trends. The train engine is the idea that government is the focal point of the economy, the hub around which the rest of society should revolve. The man atop the train engine is the ideologue who celebrates continued growth in government.

The man trapped inside the train is the dissident, the libertarian whose argument for free-market capitalism is falling on deaf ears.

More than ever in modern history, libertarianism is needed at the forefront of the public discourse, in Europe as well as in America. To get there, though, we need to grasp the full extent of the systemic crisis that the Western world finds itself stuck in.

We know the epicenter of that crisis as the welfare state.

To put Europe and America back in good order; to secure growth, liberty and prosperity; we need to break out of a conventional-thinking paradigm that has reached deep within conservative, even libertarian layers. The system of economic redistribution we know as the welfare state is now so widely accepted that it practically enjoys axiomatic status. There is no conversation about its abolishment - despite the overwhelming evidence of its role in bringing Europe to its economic standstill.

Starting and growing that conversation is a Herculian task, yet one we desperately need to take on. There is a significant risk that the 2020 presidential election will become a conduit for the completion of the welfare state - one that Democrats have sought after for decades. Their presidential candidates have been working overtime proposing more entitlement programs and even more government spending. 

There is some resistance being offered from Republicans. As I explained on Tuesday, after a slow start Conference Chair Liz Cheney is stepping up to the plate and beginning to formulate a solid counter-strategy. President Trump is behind her but showing signs of getting onboard. However, they have not yet turned a full corner for the Republican party, which has yet to abandon its decades-long track record of collaborating with Democrats in growing the welfare state.

Generally, despite the growing resiliency of Representative Cheney and President Trump, the Republican party comes across as aloof and unfocused in countering the socialist offensive from the left. We do not have to go through their track record again, but it is worth noting their failure to reform and replace the Affordable Care Act and their growing support for paid family leave. Mundane as these examples may seem, they are ideological markers showing that the idea of big, redistributive government have reached far into both sides of the American political dividing line.

As I have explained in my two recent books (see links at the end of this article) Europe is a harbinger for where we are heading. The lesson we can learn from them this time is that there are three questions that we still not know the answers to:

1. What is the answer to Legendre's Conjecture?
2. Is there life on other planets?
3. When is government big enough?

After having grown government beyond the 40-percent threshold where economic growth permanently suffers, Europe's welfare states have now spilled over into the EU level. The European Union is advancing a so-called social protocol, aimed at giving the EU legislative powers to enforce key elements of the welfare state in its member states. This is a political and economic arena where hitherto the member states have had sovereignty.

Inevitably, once the social protocol becomes EU law, it will standardize, grow and entrench the world's largest welfare state. To pay for it, the EU will have to gain taxation powers, something member states have thus far balked at handing over to Brussels. 

But is there really a problem with a large welfare state? Has not Europe proven that you can successfully combine prosperity and a large, redistributive government?

At first glance, the welfare state appears to be a success. On both sides of the Atlantic Ocean, the trend of government growth is decades old. Some countries in Europe began their journey toward today’s large welfare states already before World War II; the American welfare state was born under President Franklin D Roosevelt and got its current egalitarian shape in the 1960s with President Lyndon Johnson’s Great Society.

The long, gradual expansion of the welfare state coincides in time with unprecedented economic progress. At the end of the 20th century both Europe and the United States stood at heights of prosperity unimaginable 100 years earlier. Is this not evidence that the welfare state has indeed been a blessing for the Western world?

No, it is not. The macroeconomic success of Europe and, even more so, the U.S. economy during the 20th century were due primarily to advancements that took place before the welfare state started growing.

The European economy reached a point already in the 1970s where the size of the redistributive welfare state became a drag on economic growth. There is evidence that when government spending exceeds 40 percent of GDP the growth rate of that same GDP slows down permanently. This has happened in Europe; for at least a quarter century the entire continent has been on a slow but unrelenting path toward economic stagnation.

America is on a similar track, but has not yet drifted into the European economic quagmire. If the last pieces of the welfare state puzzle are put in place – single-payer health care and general income security for families being two of them – it is safe to predict that America will join Europe in the shadow realm of economic standstill.

The statistical evidence for government causing stagnation is compelling yet ignored in the public discourse.

Herein lies a source of frustration for the libertarian, but also the seeds of a more forceful alternative argument. Unlike those who advocate continued growth in government, the libertarian must make explicit the tie between the welfare state and stagnation.

There are formidable challenges in doing so. The prevailing presumption in politics across the Western world is that the welfare state is indisputable. Stark evidence of this is to be found in how the EU, the European Central Bank and the International Monetary Fund handled the Greek fiscal crisis, which I have analyzed on many occasions, such as this two-part series for the Centerfor Freedom and Prosperity. However, a brief summary is in place.

After at least a quarter century of budget deficits and overly generous growth in government spending, in 2008 Greece was hurled into the same deep recession as the rest of Europe. The difference was that the Hellenic republic – together with a small number of other EU members – rapidly plunged into a deficit crisis with rapid loss of investor confidence and exorbitant interest rates.

In response, the EU, the ECB and the IMF (infamously referred to as the “troika”) strong-armed the Greek government into very harsh spending cuts. Spending programs under the welfare state were reduced drastically, in many cases by 50-90 percent. All parts of government were hit, from education to health care, from pensions to unemployment benefits.

While making draconian spending cuts, the Greek government also raised taxes. In five short years, from 2009 to 2014, the total tax burden rose from 39 percent of GDP to 50 percent.

The combination of spending cuts and tax increases may seem like a technical fiscal matter, but it contains a strong ideological message – one that explains Europe’s drift into economic stagnation. The goal of the EU-ECB-IMF austerity mandates was not to reduce the size of government; it was not the case that leading European politicians and IMF economists had seen the evidence that a large government slows down the economy. Instead, the purpose was to protect the welfare state while making it fit inside a smaller tax base.

Entitlement programs remained in place, as expressions of promises that government still made to its citizenry: we will still provide you with everything we have vowed to provide, but only in smaller format and at higher prices (taxes). Regulations protecting government monopolies have predominantly remained in place, as have the taxes that fund the welfare state.

In fact, the larger share of GDP now going to government should be viewed in the context of the 25-percent decline in the Greek GDP during the crisis. Government did what it could to preserve its revenue during an economic depression.

The fact that the very welfare state may have been a critical component in bringing about the crisis in Greece, was not even a matter of discussion. Had this point been considered, the European Union would have initiated reforms that would roll back the welfare state across the union. It would have championed thoughtful, structurally sound and economically sustainable reforms to replace government programs too costly to taxpayers, with reforms to allow the private sector to become the primary provider.

If the lesson from the Greek crisis had been taken to heart, the European continent would now be brimming with reforms to privatize health care and give families back control over their own financial security. Taxes would be going down, not up; the EU would not be fighting tax competition but embrace it.

The EU would be taking a hands-off attitude toward social policy; the social protocol would simply not exist.

Europe’s conservatives - and libertarians if they even exist - have an opportunity here. By explaining the relationship between the welfare state and economic stagnation, they can convincingly argue against the expansion of this new layer of government into the lives of European families and businesses. They can point to how a Europe with decentralized economic and social policy can become a fertile ground for economic experimentation and jurisdictional competition. When allowed to pursue their own policies, some nations will move in a more conservative direction. Others will maintain statist solutions to health care, income security, education and social welfare. Growth or decline in prosperity will separate successful solutions from those that fail.

One of the hurdles in the way of this libertarian analysis of contemporary Europe, is the fact that libertarians – speaking generally – have accepted the welfare state as a matter of fact. This acceptance has spilled over from conservatives, whose embracement of the entitlement behemoth stretches back all the way to the British Beveridge Report. Published right after World War II, this report was a conservative foray into entitlements and tax-paid social policy. As I explain in my book The Rise of Big Government (Routledge, 2018), the welfare programs inspired by Lord Beveridge’s work were gradually transformed. Having been created as a comprehensive safety net to alleviate poverty they were turned into instruments of economic redistribution.

Despite valiant efforts during Lady Thatcher, British conservatives generally failed to roll back the redistributive welfare state to the confinements of social conservatism envisioned by Beveridge. Other conservatives have struggled with the same experience. In 1984, Gunnar Heckscher, former chair of the Swedish conservative party, admitted that the left had succeeded in establishing the welfare state as the prevailing socio-economic organization of the West.

With a high level of reluctance among conservatives in Europe to reconsidering the role of the welfare state, it is hard to see libertarians do the same without some very hard work. Nevertheless, they have to, and they have to overcome their fear of challenging voters in countries where half the working population depend on government to make ends meet. This widespread dependency on the government purse is a concern worth taken seriously, but it is not a final argument against a thorough re-evaluation of the economic and social role of government.

American libertarians are faced with a similar challenge, including considering what political vehicle to rely on. Since at least the 1980s the Republican party has led an ideological life on the coat tails of the Democrat party. Over the past 50 years, in terms of spending government has grown faster under Republican presidents and Congressional majority than under Democrat control.

That is not to say Democrats are more fiscally conservative; with the exception of President Clinton Democrats have shown no interest in restraining the growth of the American welfare state. However, this Republican fiscal record tells us that the ideals from the American founding have fallen to the wayside in actual Republican policy.

The roots of the apparent Republican affinity for government spending can be traced back to the mid-20th century. In his book Leviathan on the Right (Cato, 2007) Cato Institute senior fellow Michael Tanner points to William F Buckley’s work to make conservatism “respectable”. A similar argument is made by Bradley Thompson in Neoconservatism: An Obituary for an Idea (Paradigm, 2010).

It is debatable how strongly the neoconservative strain in the Republican party actually contributes to government growth, and to what extent it is really just a matter of acknowledging widespread dependency on government among people in general. Either way, there is a question to be raised about how far the Republican leadership is willing or able to go in countering the Democrat government-growth efforts in next year’s presidential election. Early after the Democrat capture of the House of Representatives in 2018, and the ensuing surge in radicalism among their ranks in Congress, the Republicans struggled to find their new footing. 

As a key indicator, Representative Liz Cheney, the Republican Conference Chair and third in the party’s House leadership, initially seemed generic and out of focus in defining the party’s response:


Her references to socialism are respectable, and she has ramped up her rhetoric and resolve since then. Moving forward, though, as I have explained recently, it is of paramount importance that Republicans abandon this erstwhile definition of socialism. Today, most Americans think of the term as associated with income redistribution – the welfare state, for short. In this form, socialism enjoys a favorable view among some 40 percent of the American public.

Echoing this sentiment, Congressional Republicans have increasingly rallied behind the idea of a tax-paid family leave program. This would take federal government spending into an entirely new area – that of general income security for working families – where Republicans and Democrats may end up competing for votes over who offers the largest, most generous entitlements.

In his first budget as president, Donald Trump gave support to the same idea.

When it comes to the welfare state in general, Liz Cheney herself is sitting astride, keeping one foot on each side of the ideological dividing line. On the one hand, in a speech at the California Republican Party convention in February 2019, she criticized the Democrat plans for socialized health care; on the other hand, a year earlier in an interview with Wyoming local newspaper Casper Star Tribune she promised to protect key welfare state programs, including Medicare and Social Security.

In other words, it is doubtful whether or not the Republican party leadership really understands the ideological and economic depth of the role that government currently plays in America. Their conundrum is explainable in the context of the aforementioned neoconservative tradition – or, as leading neoconservative thinker Irving Kristol put it in a 2003 essay for the Weekly Standard:
the historical task and political purpose of neoconservatism would seem to be this: to convert the Republican party, and American conservatism in general, against their respective wills, into a new kind of conservative politics suitable to governing a modern democracy. That this new conservative politics is distinctly American is beyond doubt, There is nothing like neoconservatism in Europe, and most European conservatives are highly skeptical of its legitimacy. The fact that conservatism in the United State is so much healthier than in Europe, so much politically more effective, surely has something to do with the existence of neoconservatism.
Kristol cites Franklin D Roosevelt as a 20th century neoconservative hero, but his espousing large, redistributive government goes farther than that. Where traditional conservatives in the intellectual tradition of Calvin Coolidge, Barry Goldwater and F.A. Hayek are opposed to a larger government, Kristol notes that neoconservatives “do not feel that kind of alarm or anxiety about the growth of the state”. On the contrary, he sees the growth of the state “as natural, indeed inevitable”.

Given Kristol’s influence over Republican politics since the Reagan administration, it is reasonable to attribute to him the GOP’s lack of ability to stand firm against further growth in the American welfare state. Like Kristol, Cheney and Trump, as well as other leading Republicans, have yet to answer the seminal question: When is government big enough?

The answer to this question is not just of ideological importance. It has a very practical meaning: as is clearly shown by the European economic experience over the past decades – and especially since the Great Recession – there are enormous values at stake here. If the U.S. economy declines and descends into the same state of economic stagnation as Europe, we may see prosperity wither away for generations to come.

Loss of economic progress is a key ingredient in the fall of a civilization. Should both Europe and America get bogged down in trying to pay for an unsustainable welfare state, then long term the entire project we know as the Western world may find itself on the brink of existence.

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For more on how America is following Europe into the dungeon of decline, despair and destitution, see my books Industrial Poverty (Gower, 2014) about the systemic European economic crisis, and The Rise of Big Government (Routledge, 2018) about how the American welfare state is designed in the image of the radical, socialist Swedish welfare state.

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