Why I harp so much on libertarianism

If anyone reads this blog regularly, they know I write a lot about libertarianism, and in most of those posts, I usually hasten to say that I am not a libertarian and explain why.  Why, then, do I write so much about it, spending precious time that I could devote to writing my dissertation?  I can think of at least two reasons.

First, I have a certain vision of how I'd like the world to be, a certain vision of what laws I'd like to see passed and of how people should treat each other and of how the state should influence how people treat each other.  This vision is not particularly coherent, nor is it all that unusual.  For example, I support gay marriage, I support universal health care provision, I support a robust social welfare system, I support an alert, but cautious role for the US in international relations (i.e., I don't like military intervention but am not fully convinced its always wrong), I support some forms of what I understand to be affirmative action, I support in principle a tax system in which the more affluent pay a greater share of their income, I support the end or sharp curtailment of the "war" on drugs, I'm coming around to supporting an open-borders immigration policy, and I support robust government coordination of the free market system (I'm purposefully avoiding the term "centralized planning" because that's not what I support).

But to be realized much (not all) of my vision would demand a certain intervention by the state, or something similar to a state.  And libertarianism provides the best critique of this vision.  And if I want to justify this vision, I find that overcoming, or at least addressing, this critique is essential.  In other words libertarianism, with its emphasis on individual "liberty" (variously and, in my opinion, often poorly defined), is a check on the authoritarian implications of my vision.

On some issues (the "war" on drugs, gay marriage), my vision is more or less compatible from the get-go with the received libertarian position (acknowledging that there is no one "received libertarian position").  On other issues--immigration policy, for example--I have been drawn more or less to the libertarian position, even if I strongly object to some of the arguments that are advanced in favor of that position.  (I really do think an "open-borders" policy is the most humane, and I support such a policy on the basis of what is humane, but I reject the frequent and sloganeering trope of "people just don't want to do the jobs immigrants do," which to my mind is mostly a way of rejecting out of hand many good-faith (if ultimately faulty) objections to open immigration.)

On still other issues, libertarian critiques have informed the way and degree to which I support certain policies.  In principle, I have no problem with compelling the more affluent to pay a higher income tax rate.  In practice, I realize one has to worry about the effects of a robust system of progressive taxation.  It's partly an issue of how much revenue is actually increased and how a tax structure may create or dismantle incentives to invest in the economy.  It's also partly an issue of fairness.  To the libertarian critique that income inequality is not necessarily so unfair that it demands government intervention, I am compelled to claim that the more affluent simply owe something to society in which they have benefited so much, which is a good assertion as far as it goes, but only if one already accepts the existence of an abstraction called "society" to which one can owe obligations.

Second, I'm already a strong believer in "individual liberty," even if I don't know what exactly I mean by "individual liberty" and even if I probably means something different from what libertarians mean by it.  Therefore my "vision" is largely congruent with what libertarians claim to want, even if I get to very different conclusions.  It is for that reason, for example, that I support measures for universal health care provision:  I believe that having a dependable and affordable access to health care helps make people "freer" because the cost of health care is thereby one less thing to worry about.  In practice, there are plenty of caveats and qualifications.  To wit a few:  most libertarians would like everybody to have access to affordable health care, too, even if they would have a different way of ensuring that access; there will always be a cost to any system of health care that can't simply be legislated away; the particular health care reform I support now (the ACA), may very well make things worse if it's implemented poorly and is not improved upon (assuming, of course, that the Supreme Court doesn't strike it down), and the shaky constitutional grounds on which it's predicated might very well serve as a bad precedent.

In other words, in some ways I am already a libertarian and in other ways, libertarianism offers the best critique and best check against my own policy preferences.  It is, in this sense, a sort of ideological conscience that reminds me I may not have yet found the true and only heaven.

Ultimately irrelevant reasons I'm not a libertarian

One of these days I plan to explore some of the fundamental assumptions of what I understand libertarianism to be and, staying faithful to those assumptions, explain I am not a libertarian.  However, today is not one of those days.

Instead, I'm going to list some of the side reasons I'm not a libertarian.  By "side reasons," I mean things that libertarians tend to do or say, or things that people, some of whom are libertarians and some of whom are not, associate with libertarians and libertarianism.  Almost by definition, these second-order reasons are at least partially unfair to the many good-faith libertarians I've met online and on some occasions in person.  These reasons are unfair in at least two ways:  First, they involve foibles that are common probably to almost any people who try to adhere to a system of thought or who identify with a political orientation.  Second, they involve things that libertarians have little control over.

Yet I do offer these as items that make it difficult for me to sign on as a "libertarian," no matter how closely I buy into some of the assumptions of libertarianism, properly understood.

First, the "ism" of libertarianism bothers me.  I have in the past subscribed to certain ism's, or at least watered-down versions of those ism's.  There was a time, for example, when I identified closely with Marxism, or what I understood Marxism to be.  There was another time when I identified closely with what I now consider to be evangelical Christianity, with "New Right" social conservatism, and a neo-con quasi-messianic foreign policy of the sort that would later be so evident in the drumbeat for war in Iraq.  (I'll acknowledge that those three views were not logically consistent, but hey, I was pretty young at the time.)

I'm wary of making the same mistakes again, of embracing a way of seeing the world that organizes it so neatly on some fundamental,  a priori, principles.  I do not mean this as a jibe against the libertarians I have met, or at least not against most of them:  most of them adopt a spirit of charitable discussion with people who disagree with them or see things differently, and they often go more than halfway.  I also realize that libertarianism is not a well organized ism in the same way that Marxism can be.  But I'm wary of (re)becoming a zealous convert.

Second, some libertarians are overfond of using "liberty" in an almost question-begging way that strikes me as dishonest.  I really do mean "some" and not "all."  I'm referring specifically to invocations of the word "liberty" when there are competing notions of what liberty is.  If someone is for "liberty" and who in their right mind would be against "liberty"?  Now, perhaps a precise reckoning of "liberty" jives pretty well with a libertarian understanding of the word.  In fact, according to dictionary dot com, the first four definitions of "liberty" refer to freedom from some kind of (usually state-imposed) interference, which appears to me close to what most libertarians mean.  But it can't escape them that in everyday speech, we often use the word "liberty" more broadly to mean something like "freedom" in general, and people have different conceptions of "freedom."  Some examples:  doing whatever one wants; living according to one's reason independent of one's "passions"; living with the knowledge that society will provide a minimal amount of material support (healthcare, affordable housing, etc.).

To simply say "I support liberty" is to elide all those meanings and put one's interlocutor on the defensive.  Some examples of this use:

From libertarianism dot org [emphases in original]:

Liberty. It’s a simple idea, but it’s also the linchpin of a complex system of values and practices: justice, prosperity, responsibility, toleration, cooperation, and peace. Many people believe that liberty is the core political value of modern civilization itself, the one that gives substance and form to all the other values of social life. They’re called libertarians.

From Timothy Sandefur of the Pacific Legal Foundation [this quotation is from a series of posts he wrote fort he Volokh Conspiracy, the link is provided in the original, the emphasis in bold is my own]:

In Minnesota a few years ago, the Midwest Oil company charged customers less than cost at its four Minneapolis area gas stations. I don’t know why — seems like a foolish idea to me, but they have the right to sell their gas for whatever they want. (That’s called “liberty.”) Certainly there was no likelihood that this four-station chain would come to monopolize gasoline sales in Minneapolis, which is full of Shells and Mobils. Still, other gas stations (not consumers, of course) complained, and Midwest Oil was assessed a heavy fine.

Now, the point he is making is certainly a good one to consider, and it's one I'm particularly interested in because of my interest in the antitrust movement.  His conception of liberty is also serviceable.  But it's preachy.  The way he uses it here and in his other posts assumes that his notion of liberty is something that need not be proven, only asserted.

A few concessions and qualifications are in order.  My problem is when people use the freestanding word "liberty."  I have much less of a problem when people qualify it--for example, by saying "economic liberty."  I also acknowledge it is unfair for me to attack what is essentially a rhetorical style--take up a loaded word ("liberty") and use it in a larger argument that either stands or falls on its own merits--as the substance tout court of the argument.  I also acknowledge that many of the offenders do elsewhere make clear which notion of "liberty" they are invoking, and it's probably unfair for me to require them to redefine and remind me, the reader, each and every time they use the term.  Finally, not all libertarians are so clumsy with their use of the word.

Still, I'm dealing in "side reasons."  Invoking "liberty" so clumsily is a noise-making drive-by argument that turns off people who might otherwise be willing to listen.    It's naive pedantry for me to insist that people elucidate the assumptions behind a key word every single time they use it, but sometimes a word can become a crutch--in the event the U.S. Supreme Court strikes down the health insurance law, I can hear even now some libertarians or people who claim to be libertarians say "This is a great advance for liberty."--and if libertarians wish to gain converts, they might wish to reconsider how they mark their key concept.


Third, libertarianism is too associated with conservatism, even the non-libertarian social conservatism and militaristic conservatism.  Probably at least since the New Deal, some movement closely allied with the Republican party and what one might call nascent conservatism used rhetoric of what we might today call libertarianism.  I'm thinking of the "Liberty League" that campaigned (and failed) against F.D.R. in the mid 1930s, particularly the 1936 presidential election.  Over the years, something that might be called "libertarianism" or a libertarian streak allied itself with the GOP, as instantiated in, for example, Barry Goldwater's "extremism in the pursuit of liberty is no vice" quip in 1964, Ronald Reagan's famous admonition that government is not the solution to our problems, but that government is the problem, and the various efforts by the GOP to claim the policies of Chicago school economists as their own.

Now, I have performed a sleight of hand here and elided some key concerns.  Just because the Liberty League called itself the "LIBERTY League," that doesn't mean that all or much of what it supported was properly libertarian, nor does it mean that there weren't good reasons to oppose at least parts of the New Deal.  If people are out of work and starving, for example, did we really need a policy aimed at increasing the price of food?  If people agree that a surfeit of competition is what bedevils the economy, a claim that is at least debatable, is it necessarily a good thing to have a cartel system, operating under rules set by the president with minimal Congressional oversight and enforced by criminal penalties?

Moreover,in the mid-twentieth century, someone who liked "liberty" in the way libertarians seem to define it would have a good case for allying with the GOP.  The Democratic Party was the haven of Jim Crow politicians.  Both parties were complicit in the formation of the national security state that has eroded civil liberties, but it was  Harry Truman, a Democrat, who presided over what were arguably the crucial first steps in that direction.

In the 1970s and 1980s, a case was to be made that some regulations were onerous and some policies were downright unjust, and the GOP under Reagan lent some moral support to this position even though the Democratic party also adopted it, even before the days of the Democratic Leadership Council.  (For example, Carter's deregulation of the airline industry (sometimes wrongly attributed to Reagan) set in motion a process that led to cheaper air fares (although some have raised concern about the implications for the safety of air travel).

It's probably true that the GOP / libertarian alliance was more equivocal than not.  The War on Drugs--variously attributed to Nixon and Reagan even if presidents of both parties have pursued it since the 1970s--led arguably to the incarceration of hundreds of thousands of citizens (and resulting social costs) whose primary crime was acting on the desire to get high and led (perhaps more arguably, but the causal chain seems at least reasonable) to extra-statist cartels ("gangs") that used violence to control their competitors.  Ronald Reagan's Strategic Defense Initiative and his increases in military spending generally--again, the increased spending represented a process initiated by Carter, but Reagan appears to have pursued it more vigorously--may have helped hasten the demise of the Soviet Union (something libertarians might sign on to), but it was also a boon to rent-seeking weapons manufacturers, the National Administration for Space-scientists' Alms, and the national-security state generally.

These qualifications aside--and add to them those libertarians who have been vociferous critics of Republicans as well as Democrats--it is still probably the case that in 2012, to identify oneself as a "libertarian" is to identify oneself as someone who supports the GOP for more than strategic purposes.  (A strategic purpose in this case might be, for example, a wish for divided government, or a preference for a non-ideologue managerial president who was instrumental in coming up with the template for the current health insurance law over a more ideological president who signed a very similar law.)

My linking of libertarians with the GOP, despite some of the historical linkages and the ronpaulian racism and homophobia that a disturbing number of libertarians tolerate even if they disapprove, is unfair.  Many of the libertarians I have met online have been very careful to define the terms of their libertarianism.  It's not their fault that others adopt the term for partisan advantage, and it's probably not fair to ask them to conjure up another name any more than it would be fair to demand that I use another word for my liberalism (say, petrocornellianism?) which differs from what most people seem to call liberalism today.  Still, the linkage is there, and to aver libertarianism without the GOP baggage is hard; and it's something that turns me off.

Fourth:  I'm suspicious of whose interests are served by libertarianism.

Libertarians seem to believe, with much reason, that libertarianism benefits all and has special promise for the most oppressed and disfranchised among us.  That belief inspires such libertarian-inspired sites as the Moorfield Storey Blog, and Bleeding Heart Libertarians.  I buy this claim to a large degree.  Aggressive enforcement of civil rights by the federal government, for example, can be argued to be "libertarian" without much of a stretch, although I will leave aside the point that the 1964 Civil Rights Act outlaws some arguably private activity that a freedom of conscious loving libertarians would want to defend, not necessarily out of agreement but as a matter of principle, against state intervention.

I too think that some libertarian projects may benefit those who suffer most from state repression.  Curtailing the war on drugs would curtail a policy that functions as a way to target and incarcerate poor people, with an emphasis on persons of color.  Even something as simple (or apparently simple) as zoning requirements might hurt the least affluent people.  I suspect that one of the many factors that contribute to the food-desert phenomenon in the poorer neighborhoods of Chicago, for example, is the fact that a large retailer like Walmart has to go through special negotiations--that sometimes last years--with the city council and with dues-seeking unions to open one store.  All the while we hear the plaints of alderpersons who are concerned about the "small businesses" that, if they really exist, must charge high prices (because of tight margins and, probably, bribes to alderpersons) to those least capable of paying them.  Walmart, of course, is not the simple solution some claim it is.  But I would suggest a less restrictive, or at least more standardized, zoning or licensing practice might encourage competitors to Walmart; as it is, it appears one needs to have the resources of a Walmart to negotiate with the city for the privilege of going into business without the support of a local alderperson.  There are probably other advantages of libertarian-ish policies for the less affluent and otherwise less advantaged members of society aside:  one that comes to mind is less restrictive immigration policies, which would probably counteract some of the extortionate power that employers of undocumented labor now enjoy.

Leaving these (probably very real) benefits aside, however, it seems that those who stand most to benefit from a generalized libertarian program are, unsurprisingly, those most in a position to take advantage of them.  Some specific disadvantaged people might support one or two libertarian policies:  for example, an undocumented worker might support less restrictive immigration policies; or someone from a service-deficient neighborhood might want it to be easier for a Walmart to open shop.  But in general, the range of policies promoted by libertarians seems, as a generalized program, to benefit most those who have the most, or who have the types of marketable skills, or aptitudes for such skills, that would benefit them most in a very libertarian polity.

I am being deliberately vague (as opposed, I guess, to "being spuriously vague") about which policies I'm referring to.   I am mostly describing my sense of a lot of the policy preferences of libertarians.  A political-economy, for example, that arranges its incentives so as to permit  the right to pursue a lawful calling best benefits those whose lawful calling commands the higher wages.  This doesn't mean that others don't benefit.  It's probably a positive good all around; and rising tides lift even tugboats.

At basis, this particular "side reason" is a spiteful ad hominem.  Yet I confess it gives me pause.

Fifth, the Koch brothers vs. Cato imbroglio.

As some of my readers may know, the Koch brothers have initiated a lawsuit to try to gain more control over the Cato institute, which they either founded or played a strong role in funding.  That suit began a couple months ago, and I don't know its status.  One of the reasons why this is all a turnoff is the way some of my online libertarian acquaintances have reacted to it.

Before the lawsuit, at least some of them vigorously defended the Koch brothers, simply as people who promoted some libertarian policies and who were unfairly being vilified for participating in the public sphere.  Now, some of these same libertarians are (probably justly) denouncing the Kochs' lawsuit as an attempt to destroy or bring under a conservative (non-libertarian) fold, what is / was a bona fide libertarian think-tank.

I don't know all the in's and out's of the Cato-Koch suit, and I still know too little about Cato to speak intelligently on it as a think-tank (although what I've read of Jason Kuznicki's writings on marriage give me reason to think favorably of it as a serious, good-faith intellectual endeavor).  On some level, there's something that smells bad here:  as recently as a 18 months ago, the Kochs were all right with their conservative program as long as they were nominally libertarians, and now they're almost evil because they have declared war against real libertarians.

My charge here is rank ad hominemism.  Petty--or even not so petty--legal squabbles like the Koch-Cato suit mean nothing for the efficacy of libertarian policies or the rightness of libertarianism.  Similar squabbles can happen and have happened among any combination of interests, libertarian or not.  I should know better than to base my approval or disapproval on a dispute that could happen between any two interests.

In fact, I should know better than to base any objection to libertarianism on what I call the "side reasons" I mention above.  I recognize their irrelevance.  Still, I confess that they play a part in my reluctance to identify as a libertarian.

Rackets, protection and otherwise

A while ago, Todd Zywicki at the volokh conspiracy linked to a paper he had written concerning what is commonly called "overdraft protection." In particular, he focuses on the recent regulations to control "overdraft protection," and proposals to regulate it further. (Click here to see his volokh conspiracy post, and here to get the link to the pdf version of the paper). Zywicki argues the regulations that have been enacted on "overdraft protection" and especially those that are currently under consideration actually harm those who make use of "overdraft protection." His argument, by and large, convinces me. But I have several reservations about it.

Anyone familiar with Zywicki's writings--or at least those writings that he advertises on the volokh conspiracy--knows that he rarely (to my ken, never) has met a regulation of the financial industry that he likes. The argument seems to be that all new regulations impose a cost, and that those costs are passed on to consumers. As a result, consumers, especially the less affluent and more marginal, have to pay more,and are priced out of credit markets either because they are now credit risks where they might not have been before or because they simply can't afford to pay for the new credit "products." In my less discerning moments, I'm inclined to believe that he starts from the assumption of what's best for the credit card company or bank and then looks long and hard for an argument that might show how a regulation affects some unfortunate class of people on the margin, and voila, he's now the champion of the poor.

In my more discerning moments, I avoid that ad hominem (note, however, that I included it in this blog post anyway). I realize that my argument against his conclusions must be more substantive than "Mr. Zywicki wrote that paper ON PURPOSE!!!" And reading his paper, I'm convinced that he's largely right insofar as he critiques regulation of what is called "overdraft protection."

A definition is in order before I explain his argument. "Overdraft protection" is the term now used for the way banks decide to honor or dishonor checks that are presented against an "overdraft," or against a checking account that lacks the funds to cover the amount of the check, almost always with a fee, per item paid or returned unpaid, in the range of $30, sometimes less, and usually more. I believe this use term is unfortunate and misleading: "overdraft protection" used to refer to lines of credit, usually unsecured, or to secondary accounts, usually savings accounts, linked to the checking account that would kick in to cover overdrafts, on the assumption that the customer would repay (in the case of lines of credit) the amount, in addition to a small amount of interest, or pay (in the case of a linked secondary account), a small fee, in the range of $3 or so.

I say the new use of the term is misleading because it feeds the fiction that the bank's practices in honoring or dishonoring checks presented against an overdraft is "product" the consumer purchases instead of an actuarial, risk management practice that the bank engages in. However, being a "fiction" doesn't make it false. "Overdraft protection" is a "product" in the sense that it is part of the set of practices that affect how a customer uses his or her checking account and that may conceivably influence which bank a customer chooses. It is also a "product" in the sense that customers end up paying for the practices, directly when it comes to being charged overdraft fees, and indirectly inasmuch as the aggregate risk assessments influence a bank's overall account-fee structure (minimum balance requirements, monthly or annual fees, fees for atm and other bank card transactions). I should say that while I wish Mr. Zywicki were more precise in how he uses the term (later in his paper he does discuss lines of credit and linked secondary accounts), I can't truly fault him for using it the way he does. Even federal regulators--the federal reserve and the FDIC--appear to have adopted that terminology.

What Zywicki is taking aim against is recent regulations that limit the way banks decide whether or not to pay against overdrafts. These regulations, if I understand them correctly, limit the number of overdraft fees a bank can charge per business day and requires customers to "opt in" to allowing a bank to honor checks against an overdraft (and thereby charge the fee). If a customer doesn't opt in, then any check or electronic item that is presented against an overdraft. Not opting in would also mean debit card authorizations would not--at least not in theory--be approved against an account with insufficient funds. For those who don't opt in, there is still a possibility of an overdraft: a debit card authorization might be approved while an account has funds, but will post a few days later, when an account might lack the funds, and my understanding is that in such situations, the usual overdraft fee would apply. Zywicki raises concerns about other proposed regulations that would, in effect, lessen the number of overdraft fees or somehow control the amount of those fees.

The ostensible reason for these regulations is to prevent what the pro-regulation side calls "abuses." Banks have to, or at least in practice they choose to, standardize the order in which items are paid against an account. Usually, banks will pay any debit authorization (once it's posted) first (because that can't be refused), then any electronic check (ACH/EFT), then paper checks or checks submitted via the normal clearing processes. (Electronic checks and paper checks are starting to meld into a new category, as some institutions are now processing paper checks as electronic items). When paper checks (or their electronic proxies) are submitted, banks follow one of three ways to clear them: by check number (usually from lowest number to highest, although conceivably the order might be reversed), by amount from lowest to highest, and by amount from highest to lowest.

The order of clearing correlates with the number of fees charged the customer. Clearing by check number has a relatively "neutral" (or perhaps "random" is a better word) effect. Clearing from lowest amount to highest amount tends to result in fewer overdraft fees because the lower amounts are more likely to be paid against posted funds before the first overdraft in a series of check presentments occurs. Clearing from the highest amount to the lowest amount tends to result in more overdraft fees because the higher amounts are more likely to induce an overdraft, and the remaining, and usually more numerous, lower amounts are likely to repeat the overdraft, incurring a new fee each time.

One of the "abuses" comes in when a bank chooses clearing by highest amount first, apparently in an attempt to gain a higher fee income. Banks tend to justify this change because 1) it gives them more money that allows them to offset the risks of defaults and charge-offs; 2) the price is born by those who overdraw; and 3) checks written for a higher amount are usually the most important checks, to pay for such necessities as rent, insurance, and utilities, and dishonoring those checks could lead to evictions, loss of coverage, and loss of access.

Zywicki argues that much of the new regulations works to impose costs on banks that will lead them to charge higher prices or to deny "overdraft protection" services to those customers that would need them most. He suggests that such regulations would be justified only if the practices they regulate represent a way for which banks to, in effect, gouge customers in a manner that's not disciplined by market competition or if customers simply don't know, and are in a position not to know fully, how the fees are charged and how much they are.

He finds such justifications lacking. He finds that the "overdraft protection" services prior to and after the regulations do not allow banks to collect "monopoly rents," the sort of unconscionable profit-seeking that harms the consumer. Although I don't fully understand what is meant by "monopoly rent," nor do I fully understand the economics behind his analysis, I'll take him at his word when he says that while banks might indeed make a profit off of overdraft protection, they do so in a largely competitive environment and from limiting their charges to those people who, by and large, use the service. That is, the people who overdraw or write checks against overdrafts are those who generally end up paying. (This is not to say that he thinks the financial industry, especially the consumer banking industry, is perfectly competitive--in fact, I seriously doubt that he believes this to be the case--only that he does not see the types of abuses that he would consider a justification for these regulations.)

Neither does he find that consumers are hapless and ignorant victims of "overdraft protection." He cites studies that suggest tentatively (and he admits the findings are only tentative and more research needs be done) that consumers to whom "overdraft protection" applies by and large are well aware of the fee structures and the procedure by which their bank pays the items that present to accounts, and that they are also grateful that the larger checks are paid against the overdraft.

Having excluded these two potential justifications for the regulations and even more severe proposed regulations, Zywicki finds what he calls paternalism as the primary reason for these laws. Like most libertarians, he share skepticism and not a little disdain for "paternalist" regulations, and offers that as an almost sufficient reason (absent the other justifications which he claims are not in evidence) to oppose these regulations. He cites the critique against "paternalist" regulations--that they essentially deny choices to people who acts affect primarily only themselves and in that sense make them worse off without benefiting anybody else. And he notes that as these regulations tend to increase the costs of managing overdrafts--by cutting off money that might be used to offset the risks of defaults and charged off accounts--certain people, particularly more marginal people, are priced out of these types of checking accounts and are compelled, sometimes, to use even more costly credit products, such as payday loan lenders.

Now, as I said above, I find Zywicki's overall argument convincing. I buy his claim that banks do not necessarily exact "monopoly rents," and I share his distrust of "paternalist" regulations, even if I do not distrust such regulations to the extent he does. Still, I have some reservations about some of what he says in his paper.

First, Zywicki hedges a bit about the "opt in" requirement. He is honest about this, and says that while his default preference would be for an "opt out" requirement--wherein the bank would decide to pay against overdrafts regardless of whether customers have given the bank prior permission to do so, but the customer could order the bank not to do so--the "opt in" requirement probably would not do much harm. He offers as a possibility, however, that even the opt in requirement would impose some costs on the bank and on customers who otherwise might have wanted to use the "overdraft protection" services in the time between when they opt in and opt out.

I said Zywicki "hedges" on this issue, and perhaps hedge is an unfair word. He's not on a crusade to combat the opt-in provision: he's simply noting some of its potential costs. I would, however, like to offer a more robust defense of the opt-in provision. Here it is: its tendency is to confirm that the customer knows what they are getting into. It's not an inexorable tendency, I acknowledge: the "opt in" notice that banks send their customers--or at least the ones that my two banks have sent me--tends to emphasize "protection against overdrafts" and not the fees or the fact that all items paid against overdrafts are done so at the bank's discretion. Still, it is a disclosure that the customer has to take an active step in accepting.

Another defense lies in one of the examples Zywicki gives to demonstrate that there are not true "information asymmetries" of the sort that would justify the types of regulations he by and large criticizes. He refers to an "overdraft protection" disclosure and notes how easy it is to read, and he reproduces the content of this disclosure (although apparently without any of the different fonts and bold type that might help the reader know to what extent the disclosure emphasizes some points in exclusion to others). One thing that his paper does not really mention is that such disclosures were, to my knowledge, almost unheard of before the new opt-in regulations. (If they were indeed "heard of," then the paper ought at least explain that.) In the deposit account agreements I read when I was an employee and customer of my banks, the "overdraft protection" policy was tucked into the larger account agreement (and if I recall correctly, it wasn't called "overdraft protection"), and one had to hunt it down just to read it and know the bank's policy. Also, the bank consistently reserved the right to change its overdraft policy at any time, although usually with notice. In other words the very clarity Zywicki praises was brought about, at least in part, by the requirement he has certain reservations about.

Finally, opting out of things is not as easy or simple as it sounds. Maybe it's my inner-paternalist here, but I wouldn't be surprised if, under an opt-out regime, telephone customer service reps be required to ask two or three times the equivalent of "are you sure?"--perhaps with a recitation of the long list of the "benefits" of opting in--when taking opt-out requests. In the cold light of day, that sounds harmless enough, but not all customers have an easy time saying no. I have a hard time saying no, and I should know better. (I even avoid calling my credit card company unless it's absolutely necessary because I know--or have good reason for believing--that the CSR is required to offer me some "credit protection" service I know I don't need and that the CSR is required to ask me at least twice and ask for my reason for not wanting the service. The main response that tends to keep them quiet is "I'm still trying to weigh my options.") Already, I'll note that the opt-in form the banks send out tend to be somewhat alarmist on the severity of the consequences of not opting-in. Even someone like me, who knows pretty firmly that I don't want to opt in, has second and third thoughts after reading those notices.

In sum, the opt in provision makes "overdraft protection" more obviously a product in the way that Zywicki wants it to be. I admit that it adds (probably) somewhat to the cost of managing overdrafts, but if it makes for a somewhat more transparent process, then I think it is a positive good.

Second, one thing Zywicki does not address fully is that when items are returned unpaid against an account with non-sufficient funds, they incur a fee almost as hefty as the fee incurred by paying items against an overdraft. At one of the banks I worked at, the difference was about $3 to $5. Although I don't remember the exact amounts, and they changed while I worked there, an item returned unpaid incurred a fee of $24 and an item returned paid against an overdraft incurred a fee of $27. Part of customers' preference for having items paid against an overdraft is probably attributable to the fact that the customers would get charged comparable fees by their bank. There are, of course and as mentioned earlier, other reasons customers might wish to have their checks paid against overdrafts: the potential consequences of, say, a bounced rent check, not to mention the fees for returned checks charged by most companies, which would obviously compound the bank's returned check fee.

Third, one thing that not opting into "overdraft protection" helps alleviate (but cannot, I imagine, eradicate completely) is overdrafts by use of a debit card. Under the older regime, banks could--and did--authorize debit card transactions, the dollar amount of which exceeded not only the ledger balance of funds in a person's account, but all funds in that person's account. (There's a distinction between the ledger balance--funds that were posted--collected balance, and available balance.) The rationale was that "it's embarrassing to try to purchase something with a debit card and have it declined and maybe the customer made a deposit at the branch today and it might show up on the system when the ledger balances are updated, or the customer will make another deposit before the authorized purchase actually posts." I admit that it can be embarrassing, especially if one tries to purchase a meal at a dine-in restaurant, after the meal is over, and has no other mechanism of payment....such a situation is not only embarrassing, it's also dicey. But the end result is that people could overdraw their account by making a debit card purchase. (To be sure, even under the prior regime, certain transactions--such as cash-back transactions or atm withdrawals--would generally be denied in cases where purchases might be approved.)

This result might not be so bad, especially if customers are by and large knowledgeable about the bank's policies, as Zywicki suggests they might be. All I can really say is that it would be a good idea for a customer to know what they are getting into when they use a debit card, and that these new regulations help ensure that. (Thus, here's another defense of the opt-in provision.)

Fourth, Zywicki under-appreciates the effects of "overdraft protection" on less affluent customers. Zywicki cites a New York Times article--which I didn't read so I take him at his word--that, he says, discusses the predicament of a college student who mismanaged his (or her?) account and got zapped with hundreds of dollars of fees by the bank. He suggests that these kinds of examples might demonstrate only that an impecunious young man overspent and did not pay attention to the consequences. Good enough, so far as it goes; and I'll add that my prejudices lead me to have less sympathy for the stereotypical college student whose parents might bail him or her out of periodic financial pecadillos. (All the while, I must admit that the "stereotypical" college student--white, privileged, affluent, child of college graduates--often does not exist, and can be a first generation college student, a parent, a full-time or part-time worker, child of working-class parents.) I'll finally admit that the "innocent college student oppressed by big banks" trope fits too neatly as a pro-regulatory prop, similar to the way that occasional (and as far as I can tell, rare) reports of police officers ticketing 8 year olds for operating a lemonade stand without a license fits too neatly into some libertarians' otherwise valid objections to the ill effects and perverse incentives of some licensing regimes.

It's not only the irresponsible college student who has lost a few weekends worth of beer money who suffers from the fees concurrent with mismanaged accounts. Sometimes it is, indeed, the single parent trying to make ends meet, or the person who is caring for an elder, or someone who is on social security disability and is barely scraping by. When I was a call-center customer service rep, I encountered several customers who claimed to fall into these categories and who often got hundreds of dollars worth of fees because of either overspending on certain things or because of a mistake in addition when balancing their checkbooks.

Now, I admit that my sample was especially skewed in favor of the conclusion I wish to draw from it. People who overdraw were probably very much over-represented among the people who called the call center (because people tend not to speak with a CSR unless they already have a problem with their account). Also, as a CSR, it was in my power to refund or waive fees up to a certain amount (although my bank had a "shaming strategy" for CSR's who did this too much, each month circulating a list of the three highest fee refunders, a list I was on almost every month...it's hard to say no when the person on the other end of the line is crying): therefore, customers are more likely to shade the truth or outright lie or claim ignorance of a bank's overdraft policies: in short, they are more likely to play the type of victim that the tentative study Zywicki cites suggests does not exist.

One doesn't have to insist that all or even most of these folks were hapless victims, ground beneath the wheel of a numbers-driven modernity. Maybe the single mother who cried because she just couldn't get ahead when I told her she had over $200 in overdraft charges really brought it on herself. Maybe she spent so much money on booze or or drugs or junk food. Maybe she wasn't even a mother. And maybe I'm a sucker. There have been times in my life where I've been taken in by people's hard luck stories, even when deep down I knew better. So anything is possible.

Still, one doesn't have to go so far and assign victimhood status to these people to acknowledge that someone who earns $2,000 a month and makes an error in addition will more likely overdraw and get more overdraft fees than someone who earns $5,000 a month. And some banks, as a general rule (at least this was true of the less than mega-sized bank I worked at as a CSR) were quite willing to refund more overdraft fees for "good customers" (that is, rich customers who overdraw only occasionally). (It's an interesting dynamic, and as Zywicki points out--if I recall correctly--a lot of repeat overdrafters are actually more affluent than; I have less sympathy for these people.)

If anything, what I want to get across is that it's these overdraft policies affect real people with real problems, not just the (largely stereotypical) slack-jawed trust fund baby who gets a write up in the New York Times. To deny that is to misread and, to some degree, belittle the urgency that some people attach to these regulatory reforms, even if the reforms themselves are misguided.

It is probably the case that the proposed regulations harms these people more than help them, and to the extent that these regulations are paternalist, they deny a little bit of dignity inherent in the ability to make choices on the market. Zywicki's under-appreciation thus does not disprove his argument, but it does, to my mind, signify a reason to be suspicious of the truth claims he makes about customer knowledge and to demand a more rigorous demonstration that "overdraft protection" does not operate in the shadows of information asymmetries.

Fifth and finally, it is these information asymmetries, which I think need further exploration, that constitute the basis for my last reservation about Zywicki's argument, an argument that I find, overall, compelling. The study that Zywicki cites suggests that customers are well-aware of their own bank's fee structures and are "grateful" that their bank pays against overdrafts. Assuming the results of this study are reproducible and generalizable, I would also like to know to what degree, if any, this ignorance results from some systematic obfuscations--the specific disclosure practices banks engage in, or even the disclosure practices mandated by law.

I would also like to point out something that, to my mind, constitutes an information asymmetry, although one that I can imagine a Zywickian analysis would account for easily. I refer to the "at the bank's discretion" proviso in most "overdraft protection" policies. To my understanding, banks used to have almost complete discretion on whether to pay a check that is presented against an account when there aren't enough funds to cover it. This makes sense. Whenever a bank pays against an overdraft, it runs the risk that consumers might not make good on the funds. Under the new regulations, my understanding is that the bank has less discretion, or at least a stronger incentive to return checks unpaid. But the principle remains valid: it's the bank's risk and it determines what risk it is comfortable with.

Therefore, the bank devises overdraft standards that are more or less rationalized based on a customer's average account balances, past history with the bank, income, and general creditworthiness. The bank at which I was a CSR observed the following procedure, which, adjusting for size, if probably in principle similar to what larger and smaller banks observe:

• It placed customers in three default categories. The first allowed overdrafts up to a given dollar amount, say $500. The second tentatively allowed overdrafts up to a given dollar amount (again, let's just say it was $500). The third allowed no overdrafts.
  
• A check that would overdraw the account of customers in the first category by less than the assigned dollar amount would automatically be paid by the bank. A similar check against the account of a customer in the second category would be flagged for attention by a bank officer who, the next business day, would review overdrafts and decide whether to pay it (the bank was small enough to make such a process feasible).
  
• A check presented that would overdraw the account of a customer in the third category would be slated to be returned automatically, subject to final review by a bank officer.
• Any check that exceeded the guidelines listed for customers in the first or second categories would also be slated for return, again subject to final review by a bank officer.

Other banks, I assume follow similar policies. Probably the larger banks that served more "national" markets had less personal officer review and more automatic decisions about payment and return of checks. And probably smaller banks had more personalized reviews of each overdraft. But the principle was the same: the bank determined ahead of time the excess dollar amounts of checks it would pay in order to speed up the process. That is how the system works.

The determination, as I said, is made along a variety of factors, but they boil down to the risk the bank believes it runs of a default or charge off of the overdrawn funds. Sometimes, that assessment of risk changes, and the bank finds it expedient to be less or more indulgent of overdrafts, and the bank changes the excess amounts accordingly.

All of this is opaque to the customer, and for understandable--and probably good--reason: if a customer knew ahead of time that the bank would automatically pay, say, a $500 overdraft, they might purposely overdraw their account by that much (and presumably pay the consequences), but if a bank did make available its assessment of an overdrawable amount, then it might have to notify the customer when it changed that assessment. Letting the customer know this information is too much of a risk for the bank.

What I'm getting at is that customers who would overdraw are writing checks in the hope that the bank might honor those checks. Sometimes--maybe even the majority of the time--such checks are written spuriously or irresponsibly to make purchases that aren't justified. Sometimes bad account management means an overdraft. But my point is customers cannot be sure in advance what the bank will pay.

I'm not sure this qualifies as an information asymmetry, or at least not one that represents a market failure. After all, the bank, in a sense, has a right to refuse payment against insufficient funds, and in practice, the per-customer assessment probably changes rarely, so an overdraft that was paid last month will probably be paid this month.

But it is something over which the customer has little control or knowledge, and if it is possible to devise a more transparent way for how this process works, while imposing only minimal costs onto the banks and to the customers they serve, then it would be worthwhile to pursue that. However, I have no idea what such a "transparent way" would look like or if it's even doable.

I have a partial solution to some of these problems, what I in another post called a "money order plus account," which is basically a savings account with money orders that operate more like checks. But it's only a solution in that it gives people another option, and this option is less convenient. Finally, I'm not certain that a critical number of persons would opt for such an account, although I might do so under certain circumstances.

I titled this post "Rackets, protection and otherwise" with the initial purpose of doing a pun on "overdraft protection" and "racket." See, "overdraft protection" + "racket" = "protection racket." Of course, if Zywicki is right--and I think he is if one accepts, as I do, most of his starting assumptions, and if one stipulates, as I do tentatively, to some of his empirical claims about customer knowledge--then "overdraft protection" is not a racket by any commonly accepted definition of the term. If I plead that consumers--even the knowledgeable ones that Zywicki claims constitutes the large majority of them--see "overdraft protection" as a racket, and if I can prove that claim, then that plea, once established as fact, only discovers that people can sincerely believe two things the logical implications of which are contradictory.

But I do think there is an opportunity for better understanding, for realizing that touting certain practices as per se good might blind us to other ways to enable people to have more choices and in effect to be more free. Maybe the answer is indeed to have minimal regulation to let loose the entrepreneurial energy that Willard Hurst discussed in his legal history scholarship. Maybe, on the other hand, we need to reconsider our values: what is the value of "having choices"? are there other ways to construct "choice" and "freedom"? is paternalism, while always suspect, therefore always necessarily bad? I won't offer the answers to these questions in this post. In fact, I'm not even sure I have the answers. But it's all worth considering.

In search of the libertarian / liberal divide, part V

A few observations after considering a series of proposed policy changes that are representative of one person's vision of "marginal libertarianism."

First, in the future, I will think real hard before promising "a series of posts" about anything. It's a hard promise to honor with my attention span and with my other obligations. (Compared to people with full time jobs or with children to raise, my appeal "other obligations" may sound suspect, since my principal obligations are working a relatively stress free, but well-paying part time job and "writing" a dissertation. But it's my blog and I'll whine about what I want to whine about.)

Second, it is much, much easier to criticize someone else's ideas than it is to come up with one's own. My objections to most Mr. Hanley's ideas, could be boiled down to: "Here are the nits I pick, but the current state of affairs is bad, and I can't think of anything better to improve them."

Third, almost all of my objections to Mr. Hanley's ideas are what I call "libertarian-friendly." Focusing on what will work is not a necessary or sufficient attribute of libertarianism, but most of the libertarians who I've read online seem very concerned about how policies will be implemented and whether they will bring about any "perverse incentives" or create a class of "rent seekers" (rent seeking is a concept I understand only imperfectly, but I understand it as the attempt to attain or maintain special privileges or unearned income from the state). Therefore, I cannot claim my decision not to be a libertarian to be distinguishable on the grounds of my differences with most of these policies.

Fourth, on the issues in which at least some of my objections rest on non-libertarian concerns, I think I see a kernal of my differences with libertarianism. I would support or at least acquiesce to government coercion for a conception of the "public interest" that seems to be defined along lines somewhat different from those that libertarians seem to define it.

Libertarians seem to define the "public interest" as "that which affects non-participant parties" where participant is defined as "someone who knowingly and willingly takes part" in a action. If, for instance, two people decide to do something that affects someone else negatively, then there is reason to restrain those people from acting, or at least require them to redress the "negative externalities" they create, all in the name of a "public interest." Conversely, if a policy would enable someone to do something that either does not affect non-participants negatively, or that benefits non-participants (or creates "positive externalities"), then that policy is probably good and serves a "public interest."

I think I differ in that I would enlargen (a real word? my spell check doesn't think so; maybe I should say "embiggen"?) the notion of "public interest" to include some an "obligation by those who have done well by the way things are to support others who have not done so well and the state ought to enforce this obligation." I see two problems with this view, neither of which I am yet able to resolve:

• It is mere assertion. I think that deep down, I agree with it, but I have no proof other than "that's what I believe."
  
• It allows for a potentially expansive state, with little check on state powers, for measures that check individual liberty, or at least by most definitions of "liberty." (Too often, I see people use the word "liberty" as self-evident, as if there might not be competing definitions of liberty.)
  

Regardless of the problems, I think this is where I differ from libertarianism. The difference doesn't necessarily have much to do with disagreement on policy, but rather on my higher tolerance of and acquiescence to state intervention by way of a more expansive justification for that intervention.

In Search of the libertarian / liberal divide, part IV

To continue with my series of posts on libertarian proposals: I am now going to cover those two items I said I "mostly opposed" of Mr. Hanley's policy proposals: for summary's sake, and for the sake of adding yet another colon to this sentence, here they are:

• Pass a constitutional amendment that bans subsidies to any for-profit corporation.
• Repeal the corporate income tax. It gets passed on to consumers anyway, so it’s just a way of pretending we’re making corporations pay their fair share, rather than substantively doing so. And it would reduce accounting costs and diminish the incentive to engage in rent-seeking in looking for special exemptions to it.

First, I'd like to change my vote from "mostly opposed" to "I'm so confused about the matter and what it would entail and how it would be implemented that I don't quite know where I stand but I think I'm opposed at least for that reason along with some others."

Here are my reservations about a constitutional amendment to ban subsidies to for-profit corporations:

• I'm unsure about the effect of an actual amendment. What would the amendment look like? How would it define "for profit" corporation, as opposed to some other entity?
• What would count as a subsidy? Would it be a simple transfer of money to a corporation? Would it be a tariff designed to protect a certain industry?
• Such an amendment would seem to run counter to the original mechanism used to create corporations. Now, it is probably open for debate whether corporations themselves are creatures of the state--it is possible that there is an organizing tendency among people to participate in joint enterprises and that such enterprises tend to act as a "body" in a way we might vaguely call "corporate"--but in practice, what we call corporations are indeed entities created by the state, either as a tool for people in business to use or, in their older form, as a special organization granted certain special rights to achieve a desired public end (I'm thinking of corporations created in the early 1800s to promote internal improvements). These types of corporations, and the privileges they enjoy, have had a long and evolving history. (Limited liability for shareholders was not necessarily an attribute of the corporation as it was originally conceived, for example.) Either way, it seems unclear to me how the creation of a corporation is not in some way a "subsidy" of those who choose to incorporate. How would an amendment take this into account?
• Would such an amendment apply only to state governments, or only to the federal government? If the restriction would be only on the federal government, would that prevent the federal government from issuing incentives to encourage overseas corporations to open up shop in the U.S.? (If so, maybe preventing such incentives is not a bad thing in itself, and therefore it might be a good thing altogether to have such a restriction.) If the restriction apply to the states, I imagine it would make illegal the disgusting spectacle we see in Illinois, wherein the governor and the legislature are falling over themselves to give various tax breaks to companies that threaten to leave the state. But I imagine that such a restriction would reduce the flexibility of state governments to act in such matters. Again, maybe that's not a bad thing, or at least not necessarily, but I wonder what the practical effects would be.
  

As to repealing corporate income tax, again, I'm unclear on what to make of it. I should plead ignorance and say that I don't know how a corporate income tax operates. My main concern is whether the correlation with prices is necessarily 1:1. If a tax of 1% is added to a corporation's income, then do prices increase by 1%, or by a lesser (or larger) percentage? I guess my main reservation is that I'd want to know more about what these taxes pay for, how much they are passed on to the consumer, and how capable they are of enforcement. I do imagine that in Illinois, the spectacle I described above would be lessened by such a repeal, but at the same time I find it hard to believe the legislators would have had the courage to impose a higher personal income tax to make up for the corporate income tax (of course, that issue is complicated, for at the time the legislature raised the corporate tax, it also raised individual income taxes "temporarily"; there is also the question of whether raising taxes at this time of recession is the right thing to do.)

In search of the libertarian / liberal divide, part III

Continuing with my series of posts on "marginal libertarian" policies and my hope to define further the distinguishing features of libertarianism and liberalism [click here to see the first post, and click here to see the second], here is a discussion of those policies which I support, but with reservations. Of these, some reservations are libertarian-friendly and others are probably more "liberalish," or at least non-libertarian (notice that I haven't defined liberalism, or liberalishism; suffice it to say that I'm "working on it").

The only one policy about which I have reservations solely on grounds that I might call "libertarian" is the radical reduction of the armed forces. Of course, my reservations probably depend at least in part on what counts as "radical" reductions. In the abstract, I'm all for ending the warfare state and the militarization of the US society and economy. In practice, the US does have a lot of commitments abroad that would be difficult to disentangle even in ten or twenty years time. Such issues are well beyond my pay grade, and I'm too ignorant. I just fear that a precipitous and "radical" draw down might be dangerous.

I call this a "libertarian" reservation not because there aren't libertarian reasons to support demilitarization: indeed, one might argue that the original antipathy to government violations of civil liberties in the Anglo world--an antipathy from which I think it's possible to trace modern libertarianism--arose in reaction to England's warfare state (I'm thinking of the "country Whig" constituency that arose in England during the 18th century and whose thinking, at least according to historian Bernard Bailyn, provided some of the ideological basis for the American Revolution). I call this reservation "libertarian" because I believe it is located closely to a notion of national defense, so that a strong military can, or at least might, deflect or at least channel the rise of local hegemons that might divide the world into separate "power spheres." In short, I fear a return to the 1930s, which depending on the circumstances might be an even greater threat to liberties than our current standing army and military industrial complex.

Now, I'm open to the notion that I'm entirely wrong on this fear. I should stress that my reservation--resting as it does on a hypothetical and on an imperfect historical analogy--is a weak one, and I would welcome a demilitarization of our economy and society the moment and to the degree that it is shown to be feasible in our current world system.

My reservations against vouchers and against a constitutional amendment to overturn the Kelo decision (the 2005 court decision that upheld a state's taking of private property and transfer to a private developer on the ground that the resulting development would increase the local tax base and provide jobs, etc.) are both liberalish and libertarian.

As for vouchers, I'm not in principle against programs that broaden people's horizons and give them options to go to schools different from the public school to which they would otherwise be assigned. The rent seeker, however, is in the details, and I'm concerned about how vouchers would work and do work in practice.

First, I would need to know if the vouchers are merely rebates of property taxes. If so, I imagine they would effectively price out those who do not own real property because there cannot be a rebate to such taxes when the taxes are not paid directly in the first place (they are paid indirectly, of course, through rent). Second, I am concerned that regardless of the basis for the rebate--or grant of money, as I imagine some voucher systems might simply be a grant of money that people may use for non-public schools--the poor will still be priced out of using vouchers and would be warehoused in public schools that now would have fewer funds available. (Perhaps this concern is less valid than I stated it: maybe money for vouchers does not imply necessarily a loss of funds for public schools, and perhaps money is only one of many problems that some public school districts face so that merely giving more money does not necessarily mean improvements.)

Now, these concerns are liberalish in the sense that they rest on the implication that it is better to compel people to pay for public education, which is in a sense a state-supported, partial monopoly. Libertarians tend not to like state-supported monopolies unless there is no other way to provide the service. I understand the libertarian support for vouchers has to do somewhat with the competition that they would allegedly introduce. Therefore, inasmuch as I would strengthen the public schools' monopoly on primary and secondary education, my reservations against vouchers is non-libertarian.

My concerns are also libertarian-friendly, however, in that I believe a voucher scheme, again, depending on how it operates, could be just a way of funneling money from one group of people to another, particularly if the voucher program is based solely on giving a rebate for property taxes. This funneling might create a class of interested, relatively more affluent people who are strongly subsidized at the expense of poorer people. Again, I must stress that this objection, like my others, comes from my ignorance of how these programs operate in practice or would operate if implemented on a wide scale.

My reservations about an amendment to overturn the Kelo decision are based more on the means of a constitutional amendment than on the prospect of overturning Kelo itself. I belief that the decision of New Haven, Connecticut, to take Ms. Kelo's property was based on a wrongheaded policy. (I have heard that the private developer ultimately did nothing with the land acquired. I don't know if that claim is true, but even if it is false, I think the policy was a bad one.) I also believe that any takings that involves a transfer of property to a private entity should be subject to the strictest scrutiny, so that the type of policy pursued by New Haven could not have survived a constitutional challenge. I disagree with a constitutional amendment for two reasons, one liberalish and one libertarian, and I admit that in some ways the betray an internal contradiction in my own thinking on the matter:

1. Liberalish: as my invocation of a "strict scrutiny" test above might suggest, I can imagine, but only in the abstract, situations in which a taking for a purpose to transfer to a private entity might be justified. I say "in the abstract," because I cannot think of anything off hand. Also, and perhaps this is only a minor reservation, would such an amendment bar any transfer of land to a private entity if that land had been acquired by eminent domain? Perhaps this question represents a misunderstanding of Kelo (I have not actually read the decision, and I do not know if the private developer in question paid for the land that was condemned). But say the state acquires land for a public purpose through eminent domain: could it transfer the land 10 years later? a 100 years later? (I will say that the libertarian skepticism of eminent domain is well founded, especially because "just compensation" is not necessarily, in practice, fair compensation.)
2. Libertarian: a constitutional amendment, depending on how it is worded, might do what it's supposed to do, but it might also either be redundant or, worse, might enable more Kelo-style takings in the future. It might seem strange to say that an amendment to overturn a Supreme Court precedent be redundant when the precedent has been set, but I would not be surprised if the Court in the next 20 years or so will start distinguishing Kelo almost out of existence. (I'm not a Court watcher or otherwise an expert on the law, so take my prediction with several large grains of salt. I have no evidence, just my "hunch.") My main fear--that it would enable future takings--rests on my belief that introducing a ban into the constitution might be interpreted as "now you can do, provided you don't violate this rule." The fifth amendment allows the federal government (and the state, through incorporation via the 14th amendment) to take property "for public use." The new amendment would, I imagine, put a further qualification on "for public use," that would likely follow a format similar to the following "shall not be construed as to permit a transfer to a non-public entity." I wouldn't be surprised if such an amendment only makes it incumbent upon the state to claim and to prove to the satisfaction of the Court that the private entity is actually, really, and in all truth, in a matter of speaking, for purposes of this taking, a "public entity." And then we'd be back at square one. (Of course, I might be wrong on all this. And maybe an amendment would introduce in practice the type of strict scrutiny I favor.)
   

For the remaining policies that I support, but with reservations, my reservations are probably more liberalish than libertarian. These concern Mr. Hanley's prescription for reforming health care provision, his desire to end agricultural cartels, and the negative income tax idea.

Re: his prescriptions for health insurance reform: I like the idea of decoupling health insurance from employment and introducing a competitive market for insurance. I also favor government intervention to help the poor and for "catastrophic" coverage (I confess, I'm ignorant enough about insurance to have a firm grasp on what is meant by "catastrophic" coverage and whether it includes, for example, pre-existing conditions). My reservations, such as they are, rest on a skepticism, or at least an ignorance, of how well the government intervention would help: how intrusive and cumbersome the means testing requirement would be and wide the gap between what coverage one can get on the market and one can get from government provision.

Re: ending agricultural cartels: Any consideration of whether farmers should be allowed to form cartels must take into account the effect such cartels have on the prices of foodstuffs. In short, I, as a non-farmer, find it hard to sympathize with practices that at least in the short term raise prices of necessary food to the consumer, and I also find it hard to sympathize with the massive subsidies provided farmers, especially when those subsidies seem to work more to encourage small- (or medium-, or sometimes large-) scale farms on land that would otherwise be farmed any way than to encourage farming on land that wouldn't be farmed at all without them. Therefore, I would support ending government support for agricultural cartels, but my reservation rests on my ignorance: does the government merely tolerate such cartels, or does it enforce them? If it's only the former, then I might be inclined to support them or at least their legality.

Re: the negative income tax. I confess to not knowing much about the negative income tax, and most of what I do know I learned just a few days ago when I read this post by someone who has studied the idea. There are, as the author of this post notes, some problems with implementing such a plan, but I think it sounds like in general a good idea. I would not like to end all other forms of support, however: I think I would support a robust food stamp program (with all its problems), for example, in addition to a negative income tax, largely because I fear that any version of the negative income tax likely to be implemented would not be sufficient to ensure what I would like to consider a minimum standard of living (note that my "minimum standard of living" is probably higher than what might be considered subsistence level).

In my next post, I'll discuss briefly the policies that I more or less oppose, although I'm not entirely opposed to the motivations behind enacting them.

In search of the libertarian / liberal divide, part II

In my previous post [click here to read it], I listed a series of policies advanced by a self-identified "marginal libertarian" and promised to examine why I support, support with reservations, or oppose these policies. In this post, I'll start with those policies that I almost unequivocally support: ending the war on drugs and legalizing same sex marriage.

First, ending the war on drugs:

I'll say that whatever other reason I might have for opposing the war on drugs, I'm convinced by the libertarian argument for ending the "war." Here is that argument as I understand it: the "war" is an excuse, and provides a mechanism, for the state to exercise a broad authority over its citizens in a particularly arbitrary way. The "war" subjects people to constant governmental oversight, crowds our prisons, and ruins the job prospects for millions of people who are caught for "possession." It also acts as a sort of "prosecutors' insurance": if the prosecutor "knows" someone is guilty of something serious, but can only prove possession, then the he or she can leverage that possession into a plea deal that increases his or her conviction rate. The "war" also creates a broad constituency for its own perpetuation: the prison guards union in California, owners of privatized prisons, prosecutors, the vast networks of funding streams for federal, state, and local efforts to eradicate the drug trade, to name a few.

My only quibble with "end the war on drugs" is not a particularly anti-libertarian one, it's one of definition. At its base, the "war on drugs" is a metaphor for a wider array of policies that function as a large power shift of the state over everyday citizens. In other words, there is not one single "war" policy that needs be overturned, but several other steps that probably include decriminalization, ending funding streams, ending the Drug Enforcement Agency. (Note, ending the "war" does not, to my mind, necessarily imply legalization, although it probably implies a radical decriminalization. Also, some ways that might be proposed to end the war, a "focus on treatment," for example, might have some very bad collateral consequences: in my more dystopian moments, I can imagine a judge saying to someone "well, you haven't committed a crime--and therefore this is not an adversarial process and you don't have the right to a lawyer--but you appear to be an addict, and I therefore "invite" you to spend 5 years in a treatment facility, and because this is for your own good, you must accept the invitation or be guilty of violating law wxyz-1234.")

The policy goal of allowing same sex marriage is also one I support largely on libertarian as well as personal grounds. The personal: I know several gay couples, and I would like them to have the option to marry if that's what they want to do. The libertarian: I find it unfair to deny some couples the right to marry simply because they are of the same sex. With the exception of, perhaps, a (probably very slight) increase in government spending or decrease in tax revenues because more people would, with gay marriage, be in different tax and social security benefits categories, and with the exception of knocking straight marriage from its position as "the only marriage contract allowed," I don't see how legalizing gay marriage affects others' rights at all. Even if the affect on taxes and government spending be enormous, I hope I would still support ssm because it's the right thing to do.

In my next, probably most boring post of the series of posts, I'll discuss the policies I support, but with reservations.

In search of the libertarian / liberal divide, part I

I often have a hard time explaining to myself why I am not a libertarian. Well, in some ways, I suppose I am, but I do not choose to identify myself as one, and the policies I tend to prefer are generally not endorsed by people who call themselves libertarians.

In part, my refusal to identify as a libertarian comes from a reluctance to be identified with the popular caricatures of libertarians: according to one of these caricatures, libertarians are minarchist extremists who support policies that would take us to a new feudalism where the owners of property rule over all in a sort of survival of the fittest world. This caricature--as well as others I could mention--is unfair to what I understand most self-proclaimed libertarians to believe. Still, that doesn't answer really why I don't identify as a libertarian. (For what it's worth, I don't identify as a Democrat, either, even though my preferred policies seem to be more congenial with what Democrats advance.)

However, when I read what consistent libertarians believe (there are always libertarians of opportunity, just as there are fellow travelers of opportunity to any ism when what what that ism advocates is congenial to them), I am sometimes at a loss to explain my differences with them. In one post, I listed things I have learned from libertarianism (click here to see it; and to that list I'll add that libertarians place a value on "choice," such that policies that tend to enlarge the number choices available to people tend to be better than policies that limit the number of choices). But although I appreciate these lessons and indeed must take them into account when I think about any of my policy preferences, they leave me at a loss to explain why I don't identify as a libertarian. This "loss to explain" is further highlighted by other (perhaps over-broad) statements about what libertarians believe, as in the explanation provided by libertarianism dot org [click here to read it in full]:*

Libertarianism is the belief that each person has the right to live his life as he chooses so long as he respects the equal rights of others. Libertarians defend each person’s right to life, liberty, and property. In the libertarian view, voluntary agreement is the gold standard of human relationships. If there is no good reason to forbid something (a good reason being that it violates the rights of others), it should be allowed. Force should be reserved for prohibiting or punishing those who themselves use force, such as murderers, robbers, rapists, kidnappers, and defrauders (who practice a kind of theft). Most people live their own lives by that code of ethics....[the definition elaborates a bit further, and I invite you to click onto the above link to see what I leave out, but I think what I've quoted here represents it fairly.]

This definition, as far as it goes, is something I could probably sign on with. I would, and do, quibble with the claim in the last sentence inasmuch as I believe we all have an inner authoritarian that out of spite or pride would forbid others from doing something which harms us not (at the same time, I believe a lot of libertarians suppose anyone to be corruptible, which is one reason why they are suspicious of concentrations of power into the government). I also believe that in the right circumstances we all are or would be tempted to resort to it. But quibbles are a fact of life, and in broad outlines much of this definition seems congenial. I do think it is over-broad because I imagine a very large number of people who are not libertarians would claim to be willing to embrace it. (Note, for example, how opponents of same sex marriage often frame their opposition in terms of how ssm would damage traditional marriage, not in terms of denying someone the right to do something that otherwise respects the rights of others.)

Too often, when I think about such things as "libertarianism" or "liberalism," I tend to focus too much on first principles and starting premises. And that focus leads me into vague, unsupported assertionism (see my claim that we all have an inner authoritarian).

Something I read recently at League of Ordinary Gentlemen, however, gives me the chance to explore further why I am not a libertarian. James Hanley, in the comment thread of a guest post at League of Ordinary Gentlemen (click here to read the post) gives a list of some policies that he, as a libertarian, would support. He calls these "marginal improvements" in order to underscore that they are doable and that libertarianism does not necessarily represent some pie-in-the-sky attempt to remake society completely de novo. Here is a concrete instance where I can say I support, oppose, or support with reservations a specifically libertarian policy and whether I support, oppose, or support with reservations out of respect for principles that might be considered libertarian or out of some other principles, or a combination. In short, examining this list will give me the opportunity to explore why I don't consider myself a libertarian and to explore what I see as some of the distinguishing features of liberalism and libertarianism. Here is the list Mr. Hanley provides, in brackets is a notation of whether I mostly support, support with reservations, or mostly oppose the given policy (click here to read the original comment):

1. End the war on drugs. [mostly support]

2. Radically reduce the armed forces (ok, that might be beyond marginal, but I think changes at the margin there are unlikely to stick). [support with reservtions]

3. Eliminate our current welfare programs and shift to a negative income tax. [support with reservations]

4. Pass a constitutional amendment that bans subsidies to any for-profit corporation. (I’m not a fan of subsidies for not-for-profit ones, either, but I don’t want to get rid of the tax deduction for contributions to non-profits, which is a de facto subsidy.) [mostly oppose]

5. Repeal the corporate income tax. It gets passed on to consumers anyway, so it’s just a way of pretending we’re making corporations pay their fair share, rather than substantively doing so. And it would reduce accounting costs and diminish the incentive to engage in rent-seeking in looking for special exemptions to it. [mostly oppose]

6. Promote the expansive use of school vouchers. [support with reservations]

7. Eliminate the federal law that allows for the creation of agricultural cartels. [support with reservations]

8. Change our health care system so that it’s actually more of a market system, reserving government’s role primarily for catastrophic care and the very poor. At a minimum this requires severing the link between employment and health insurance (which is what is actually blocking most unemployed/self-employed people from getting health insurance), and making it easier to set up inter-state buying networks. [support with reservations]

9. Allow same-sex marriage. [mostly support, with no reservations]

10. Constitutional amendment to overturn the Kelo decision. [support with reservations]

In the next few posts, I will examine each of these policies to explain why I take the position on them that I do and what role properly "libertarian" justifications play in my assessment of these policies. I will then follow up with a more general post on what this all means for defining the distinguishing features of libertarianism and liberalism.


*I do not read that site regularly and only stumbled on it a few days ago. I also cannot claim that it speaks for all or most libertarians. My very brief perusal of the site suggests to me that it relies on a question-begging, one-size-fits-all notion of liberty that amounts to preaching to the choir.

What I've learned from libertarians/libertarianism

Well, for starters, it's not my sense of humor. I suspect that if a libertarian had to listen to my jokes all day, even he or she would support, "for the good of society," some restrictions on speech.

But I have learned a lot from them. First I should clarify what I mean by "libertarians" and "libertarianism." By libertarians, I mean those who call themselves libertarians and appear (to me) to be sincere. In other words, I have not read most of the intellectuals credited with being "libertarians," like Hayek or Friedman, although I have read Locke, who might be a proto-libertarian. I have also read Adam Smith's Wealth of Nations--the whole thing, although I can't claim to have understood it or to remember it. By libertarians, I mean, for the most part, those who I have met on the blogosphere, either at the belated Positive Liberty site and its successors or at the Volokh Conspiracy.

By libertarianism--well, I guess I should clarify what I mean, but I don't know what I mean, so I'll just assume I know what I mean.

Finally, when I say "I have learned" x, y, or z "from libertarians," I acknowledge that perhaps what I have learned has something to do with things that aren't essentially "libertarian" but are consistent with what I've observed libertarians support or believe in. In short, I am not a libertarian, but I have learned a lot from people who claim to be.

Here's my list:

• Acti0ns have unpredictable consequences.
• Government regulations usually (maybe always?) impose costs, and even the best regulations usually (maybe always?) get us something good at the cost of something else that is also, although not necessarily as, good.
• Government regulations can and often do create "perverse incentives."
  
• The state is coercive, and coercion of any sort is something we should be at least wary of. Even if it's necessary.
  
• Fraud is a form of coercion.
• The morality and efficacy behind antitrust laws is, to say the least, problematic. (I've actually probably would have come to this conclusion without the aid of libertarian bloggers of the libertarian scholars who I've read on this subject--my dissertation research has in some ways led me to this conclusion--but they have helped me in affirming this conclusion.)
• Torture is not only wrong (which I either learned or "knew" on some level for a long time), its effectiveness is highly questionable. Its effectiveness being highly questionable gives yet another reason why it is wrong.
  
• The notion of what many libertarians call "economic liberty" deserves respect. ("Deserving of respect" does not, in my view, have any obvious implications about the role of the state, and I certainly remain comfortable with, for example, only rational basis review by the courts over restrictions on economic liberty. But I have more respect for the argument that economic liberty is an important thing for people.)
  

By whom the offense cometh

One common theme of Mr. Zywicki's at the volokh conspiracy is to point out how new financial regulations at the state and federal levels tend to harm the very credit consumers that they are intended to help. The gist of his arguments: while making it more costly to provide certain loans (either through limitations on such impositions as late fees or limitations on interest rates), these regulations prompt lenders to restrict credit to more creditworthy folks or to shift costs onto those who have less. (For an example of the latter, see his linking to an article about the trend away from "free banking." Click here to read it.)

His most recent post (click here to read it) is about an initiative in Montana which effectively outlaws payday loans by drastically lowering the interest rates that lending facilities can charge. Mr. Zywicki says he holds little favor for payday lenders, but putting them out of business effectively denies choices to people rather than helps them.

There's a counter-claim to his claim, namely that the "real" problem is that people are drawn into an ever oppressive system of debt and repayment and that closing down these lenders puts an end to the enticement to this trap. I think this claim is fundamentally an empirical one that could plausibly be tested. I think such a test would show that in at least some cases, the claim proves true.

But none of this really denies Mr. Zywicki's claim. If some are helped by no longer being exposed to the trap of payday lending (and it's unclear to me how many customers of payday lending find themselves in an irresolvable debt-repayment trap and how many have been able to use the services a few times when cash was particularly tight and repay everything before the cycle becomes oppressive), some are, in effect, "harmed" by no longer having the option.

What Mr. Zywicki argues goes against my instinctive sense of what's just. But I think he is right, as much as I am disinclined to want to admit it. He himself notes that he is "no fan of payday lending and auto title lending." I am beginning to think that the morality of payday lending is a distinct issue from whether the state ought to ban it. As Lincoln said, quoting a passage in the Bible, "if it must needs be that offenses come, then woe unto the man by whom the offense cometh." (I myself ought not be pompous in claiming who's to blame for the offenses. One summer, I gave brief but serious consideration to applying for a job at a payday lending post: I had the requisite banking and cash handling and probably had a chance at getting the job.)

I do wonder, however, if there is some other way to prevent or at least curtail significantly predatory lending schemes. I do think one partial solution would be to encourage banks to take on more customers. (I blogged about this a while ago, click here to read it if you're interested.)

Are markets in any meaningful way "natural"?

It is a common meme of our culture (and by meme I mean "something that I claim to be 'in the air,' but I abjure any responsibility for proving that people actually say or believe it") is that "markets" and "market mechanisms" are "natural" and that attempts to interfere with them by, say, government regulation, are "artificial" constraints on the natural. It's sort of a zen thing: the natural laws of, say, supply and demand are immutable, and regulations don't change those laws, they just frustrate and channel their operation in what are, in the long term, harmful ways. I simplify, of course: I suspect that I don't really understand the "laws supply and demand" and that at any rate they by themselves do not sufficiently explain what a market is.

What is a market? Wikipedia defines "market" (at least today it does) as " any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby businesses sell their goods, services and labor to people in exchange for money. Goods and services are sold using a legal tender such as fiat money. This activity forms part of the economy. It is an arrangement that allows buyers and sellers to exchange items." I'll work with this definition not necessarily because it is the right one, but because I'm too lazy to come up with my own or to research all the other possible meanings.

Those who speak of the market and "market mechanisms" as natural are, I believe, speaking metaphorically. The most literal construction to put on the difference between "natural" and "artificial" demonstrates that, literally speaking, markets are not natural at all. According to my Google master (which is the ultimate owner of this blogspot account and the Prime Mover behind the search engine I use, praise be its name), lists, among several definitions of artificial:

• contrived by art rather than nature; "artificial flowers"; "artificial flavoring"; "an artificial diamond"; "artificial fibers"; "artificial sweeteners"
• artificially - not according to nature; not by natural means;
• Man-made; of artifice; False, misleading; Unnatural
  

It is the notion of "(hu)man-made" that I want to emphasize here. (I do not, however, want to emphasize "falsity," as is implied in the last definition I cited.) In the most literal reckoning, markets, because they involve, by Wikipedified definition, people, are "artificial." Without people, there would be no markets. (Probably. I don't know if people make the argument that non-people, say, dogs, cats, paramecia, or venus flytraps engage in behavior that can be properly labeled "market"-oriented behavior. I'll also concede, without knowing or even caring, that there is probably some species of chimpanzee somewhere whose members participate in some "market-like" behavior.)

Rather than claiming that markets are literally natural, the "market naturalizers," I think, are making a different claim. One variant of this claim is that people, left to their own devices, engage in market-like behavior and that a political economy that lessens obstacles to this market-like behavior encourages people, in effect, to do what they are "naturally" inclined to do. Conversely, a political economy that, through regulation, increases the obstacles to this market-like behavior discourages people, in effect, from doing what they are "naturally" inclined to do.

This claim and its converse have a corresponding normative claim that markets are good, first on the the ground that what is "natural" is good, but second on the much more tangible ground that markets lead to greater material and even non-material happiness: market competition leads to more "choice" and more goods and services (material) and allows each to develop his or her comparative advantage (material and non-material inasmuch as pursuing one's true calling is a "comparative advantage" and leads to personal happiness). The first ground is facially compelling but empirically unprovable: it's just assumed, and most people presumably share the assumption. The second ground is subject to quantifiable proof, and even though "happiness" is always tricky to pin down or to quantify, access to the goods one wants and to the ability to pursue what one does best can be easily measured.

One question that comes to mind, for me at least, is who or what enforces fairness in the market? If I cheat somebody on a sales transaction, how can someone get redress? I suppose that one would not patronize my business or services if I were known to be a cheater (and, for the sake of simplicity, I am speaking of a market as a center of distribution of goods and services and not the more hoary (because I don't understand it) notion of "public choice" theory that probably extends market behavior to other types of action....in other words, I'm sticking toward my working definition cited above). Would the person I cheated get their money back? How? It seems that there needs to be some arbiter that will prevent the person I cheated from resorting to challenging me to a duel, or paying protection to a bunch of thugs who will make sure I pay back that which I stole (but then we get into a feudalism thing, and that's usually not very pretty).

The type of example I just mentioned is not really all that damning. The market naturalizers recognize, usually, that there needs be some enforcement mechanism for a market to operate smoothly; they also mention the phenomenon of "market failures," in which goods and services are not really allocated all that well (the tragedy of the commons, and all that). In answer to my assertion that "there needs be some arbiter," a market naturalizer might claim that a distinction ought to be made here between "government" and "governance," and it's a distinction I don't understand fully. But to the extent that I do understand it, it merely begs the question (in the sense of "raises the question" and not in the sense of "assuming that which is to be proven") of what "government" is, or what the "state" is, or what is an "artificial regulation" and what is a "regulation in accord with the natural laws of the market."

I've written a lot here, and I don't have an answer to my own question, at least not an answer that would convince anyone not already predisposed to agree with me. Here's my tentative answer: markets, whether natural or not, are fragile things and need to be propped up by something and the something that props them up is part of what defines the state. Two objections to the preceding sentence: the first clause (about inherent fragility) is merely the confession of a bias that is not particularly provable; the second clause (about defining the state) merely begs the question (in the sense of "assuming that which is to be proven" and not in the sense of "raises the question"). But that is the starting assumption I am working with.

Why bother stating this assumption? I'm certainly not the first at questioning the naturalness of the market, nor is my questioning of it necessarily the most eloquent or even comprehensible. But I think, or at least hope, that looking at markets as fragile entities "demystifies" (a term I hate, because it would make me look like a Marxist who spends all his time whining about commodity fetishisms and the "alienation of labor from the product of labor") the notion that "darn it, markets just need to be free" and any governmental intrusion into the economy is a hindrance of that freedom.

There are, of course, wiser and less wise governmental intrusions into the economy, and some intrusions create perverse incentives that make things worse. The Health Insurance Reform, for example (which I support by the way), will, even if it works like it's supposed to and isn't declared unconstitutional, create certain challenges that can't be escaped from just by governmental fiat: will there be enough doctors to service the newly insured at the lower remunerations that will likely result from government controls on the prices of premiums? how much will the prices of premiums be lowered? how will smaller businesses bear the burden of having to provide insurance? how will people out of work find jobs now that it would be more expensive for even larger businesses to hire new employees? But the notion that the reform merely impinges on something "natural" would not be a good argument by itself to lodge against the reform. Any such argument needs to be supplemented by what would be better, by an assertion of a different kind of structuring of the health insurance and health care markets, and that assertion would either be the status quo (which no one, to my observation, claims to like) or something different, based on, say, tort reform or tax credits or decoupling (through new employment taxes) employment from access to health insurance.

One of the tags for this post is "libertarianism." By so tagging this post, I do not mean to imply that libertarians have no valid points when it comes to regulating or deregulating the economy, and I do not mean to build a man o' straw--I know their critiques of regulation are more sophisticated--but I do notice that they sometimes indulge in the "markets are natural" rhetoric, and it is this indulgence I am objecting to.