View source for Confessions of an ex-libertarian

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[[Category:Koen Deconinck]]
[[Category:Testimonials By Former Libertarians And Objectivists]]
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{{DES | des = When [[Koen Deconinck]]'s extended study of [[Austrian Economics]] found it was unconvincing, doubts about the rest of libertarianism rapidly followed. | show=}}
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{{Quotations|Confessions of an ex-libertarian|quotes=true}}

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I used to be a libertarian. However, somewhere around the financial crisis, I lost faith in libertarian theories. Some friends have asked me over the years why exactly I changed my mind, and I've always postponed answering them. Here is a first attempt. I apologize beforehand if this post is long and boring, or narcissistic and pretentious, as it will mostly be about my thoughts about libertarianism and not exactly about libertarianism per se. But at least I've finally fulfilled my promise to explain my change of heart.



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Somewhere around my eighteenth birthday, I became a libertarian.

In the preceding year, I had been studying a little bit of high-school economics, just enough to know how to find the deadweight loss of taxation in a simple supply-and-demand diagram and to know how heavy the burden of taxation was in my home country, Belgium (the answer is "around fifty percent of GDP"). Gradually, I became convinced that government regulation and taxation often did more harm than good.

In addition, I had been reading provocative ideas on the internet - essays about why people should have the right to secede from their government, about why we should have referendums instead of party politics, about why home-schooling should not be punished by the state, and so on. I was discovering political philosophy, and I was shocked by the realization that "rights" as they are written down in a constitution are quite malleable and completely depend on the goodwill of the government - after all, the Soviet Union used to have a relatively liberal constitution. For my high-school English class, I read Nineteen Eighty-Four, which did not exactly calm my fears of totalitarian governments (a boot stomping on a human face forever...). Roughly at the same time, we were studying Plato in my high-school Greek class (yes, I am that nerdy), and I decided to read Popper's Open Society to see what he had to say about Socrates' most famous pupil.

But the real transition to libertarianism came when I discovered the Austrian School of Economics, and their theory of business cycles in particular. Up until that point, I was afraid of big government and convinced that taxes were too high, but all that seemed a necessary evil given the possibilities of recessions, when, according to my high-school textbook, the government needed to step in. Yet, here was a group of smart people claiming among other things that the traditional interpretation of the Great Depression was wrong; that, instead of solving the problem, the government had actually created it in the first place and aggravated it with misguided policies. I must have read hundreds of articles on Mises.org back then, and together with some like-minded friends I spent my pocket money on their online bookstore, filling my bookshelves with Mises, Rothbard, and Hayek (although mostly Mises and Rothbard). Eventually, we ended up founding the Belgian Murray Rothbard Institute, and I even gave a series of talks on the economic theories of the Austrian school, including their business cycle theory.



A belief is usually linked to other beliefs. Communists believe that entrepreneurs are evil, capitalism is prone to crises, communism can work as an economic system, inequality is bad, and communist experiments in the twentieth century get too much bad press. Many of these ideas don't necessarily follow from one another in a logical way. In theory, you could be convinced that all communist experiments have been utter failures yet you could remain hopeful for the future; you could believe inequality is not a big deal but capitalism is prone to crises, and so on. In practice, these beliefs almost always go together in a complex of normative and positive ideas which reinforce each other.

My beliefs about libertarianism were similar. I had some normative beliefs: people have inalienable rights to life, liberty and property; taxation is theft and thus immoral; as long as transactions take place with mutual consent and nobody's property rights are violated, there's no harm being done. And I had some positive beliefs: taxation leads to huge welfare losses; if only government would get out of the way, society could be so much wealthier; unemployment is caused by the minimum wage and by business cycles which are the fault of central banks.

Such a web of mutually reinforcing ideas can be remarkably robust to small attacks. If someone argued that my idea of cutting social spending was horrible, I would reply with some combination of normative beliefs (redistribution is theft) and positive ones (social spending keeps people trapped in poverty, without central banks and minimum wages there would be no unemployment, taxes destroy wealth). One belief was supporting the others, and vice versa.

But some ideas are more central than others. In this respect, a web of beliefs is similar to the internet. The internet, by which I mean the physical structure of computers and cables, seems to consist of thousands of servers with only a few connections to other servers, and a couple of super-nodes with thousands of connections. It turns out that this structure is very robust to small, "random" failures - but sensitive to "targeted" attacks on the important nodes. I believe the same thing is true of belief systems. They can be robust against small attacks on some beliefs, but a person's web of opinions can quickly unravel if some critical beliefs are undermined.

That is exactly what happened around my twenty-first birthday. Only a few weeks before, I had given the last of my talks about the Austrian school of economics. I was in my final year of the undergrad program in economics, and I was writing my undergrad thesis on the Austrian theory of business cycles. It was early 2009 and the economy was not doing very well.

I originally wanted to show that the Austrian business cycle theory (ABCT) was the correct explanation for the ups and downs in the economy since - well, since as soon as data series started. I was convinced that it would not be that hard to prove the point; some papers by Austrian economists had already found evidence and anyway, how could the theory be wrong? My econometric skills were quite primitive back then, but even with simple methods I found contradictory results - prices, in particular, were not really behaving like the Austrians said they would, and other data series were murky at best. There was no decisive evidence favoring the Austrian explanation over the others. The earlier papers turned out to be rather limited in their tests, or even plain wrong in their methodology. I don't think my own empirical work was very good, but it was enough to create serious doubts.

In my thesis, I also wanted to address the question of why only a handful of papers had tried to find empirical evidence for ABCT while so much effort had been devoted to theoretical work. I included a brief description of Mises' methodology of "a priori" economics (or praxeology, as he called it). According to Mises and his followers, economists should start from undeniably true axioms about human behavior, and derive all propositions of economics from those first principles using nothing but logic. The idea was to have a strong, necessarily true theoretical framework which could then be used to understand and interpret specific historical events. For instance, the Austrians defend the principle of the diminishing marginal utility of consumption not on empirical grounds or with reference to everyday experience, but on strict a priori grounds: a rational consumer must allocate the first unit of a good to his most pressing need, so that he will use the second unit for the second most pressing need, and so on - hence diminishing marginal utility.

Mises emphasized the point that there are no constants in human action, so that it is ridiculous to try to use statistics to uncover "hidden laws" in the data. An estimate of the elasticity of the demand for potatoes in a given decade tells us nothing about the elasticity today or in any other year. (I believe this is an example Mises himself uses). Of course, with such methodological ideas, it's hardly a surprise that Austrians have not done much statistical research on their business cycle theory, while there have been lengthy discussions about the correct way to derive the existence of interest rates from a priori foundations.


I actually had this poster in my room. 
And I had a T-shirt of Mises. 
And of Rothbard. 
And of Böhm-Bawerk too.

While I was writing this part of my undergrad thesis, I found the arguments against statistics and in favor of the "a priori" approach to be less convincing than I initially thought. Sure, there are no constants in human action - people can change their minds. But people don't change their minds constantly and randomly. If they did, it would be pretty hard for entrepreneurs to forecast market demands. There are no constants, but there are "quasi-constants": the elasticity of the demand for potatoes is not a constant, but perhaps it varies only slowly over time, so that our estimate based on last year's data may be a good estimate of next year's elasticity.

Moreover, much of the theories of the Austrians suddenly seemed empty to me. Let's take the example of diminishing marginal utility again. What about someone who needs six eggs to bake a cake, and who can't do anything with less than six eggs? The marginal utility of his sixth egg would be higher than that of the previous five eggs. Ah, say the Austrians - this is because you are looking at the wrong unit of analysis. The unit of analysis in this case should be a package of six eggs. The principle, says Rothbard, refers only to units of the good which can deliver the same services. The sixth egg can deliver different services from the five previous ones, so the law of diminishing marginal utility still holds if we look at the "relevant" unit of the good.

That sounds great in theory, but it makes the principle of diminishing marginal utility completely useless. The reason why Austrians care about diminishing marginal utility is that it gives downward-sloping individual demand curves, which, when summed up across all consumers, give downward-sloping market demand curves. But if diminishing marginal utility is just based on a word play - on redefining the "relevant" unit of analysis - then its practical relevance is zero: it tells us nothing about how the market for physical units will look like. After all, eggs are not sold at different prices for their different uses. How useful for "interpreting history" is a theoretical construct like that?

What we need is not some theory which is undeniably true but completely irrelevant. What we need is a theory which is plausible, and which could be applicable in a given context or not. Why would it be such a problem to state that diminishing marginal utility seems plausible based on psychological grounds, introspection and common sense, but that exceptions are possible?

In short, methodologically speaking, I found myself in agreement with many arguments made by Bryan Caplan in his essay "Why I am not an Austrian economist".



Other factors played a role. In the midst of the financial crisis, many libertarians opposed the bail-out of the banking sector. Yet, as any economist (and especially an Austrian economist) should know, the financial crisis had the potential of wiping out the entire banking system, drastically reducing the money supply. For some of the hardcore Austrians this might sound great - a nice, big cleansing to get rid of the fractional reserve system. But even Rothbard himself would have admitted that the economic consequences of a meltdown are horrible. In discussing plans to return to a gold standard, he explicitly warned against "a deflation of the money supply down to the level of existing bank reserves. This would be a massive deflationary wringer indeed, and one wonders whether a policy, equally sound and free market oriented, which can avoid such a virtual if short-lived economic holocaust might not be a more sensible solution." (see here on p. 155). To anyone who understood the basics of the financial system, it was clear that letting the banks fail was not an option. However poorly some of the bail-outs were executed, laissez-faire would have been incomparably more disastrous. 

Several crucial beliefs had been damaged, and from that point onwards, other beliefs started toppling like dominoes. I had actually entertained some anarcho-capitalistic ideas, again following the logic of Rothbard that governments are not necessary, mostly harmful, and immoral anyway. But what if sometimes, some rights needed to be violated a little bit in order to safeguard other rights? In the Austrian view of welfare economics, it was impossible to talk about such issues, because there is no concept of "how much" in Austrian economics (a point made by Bryan Caplan, as well as by Deirdre McCloskey). Taxation is theft which is a violation of human rights, even if the tax rate is very small and the proceeds are used to make sure non-government thugs don't kill you. The anarchocapitalistic belief that you can have a stable, peaceful society without government also seemed less and less plausible. Interest groups will always try to secure their position, to obtain monopoly rents, to silence the competition; there is no reason why they would only use peaceful means when there's no one to restrain them. Of course, powerful governments are potentially dangerous too, but we have spent centuries trying to find ways to tame the Leviathan, and we seem to have become relatively good at it, at least from a human rights perspective. By contrast, we haven't got the slightest clue about how to protect basic liberties in an anarchistic environment.

Many of these thoughts probably seem obvious, as they are to me know. Of course, I had heard most of these arguments before in discussions. At the time, I didn't find them convincing. But now that some crucial beliefs had fallen, these doubts were attacking a fragile structure. In a matter of weeks, most of my libertarian ideas had become big, floating question marks. The doubts had become big enough to leave the Rothbard Institute and to stop calling myself a libertarian, even if there was no immediate replacement for the libertarian ideas.

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More than three years have passed since I left the libertarian camp, and I still don't have an ideology to replace the old one. Perhaps I will never have a replacement. I have some ideas on some topics, on other topics I have no ideas, and most of the ideas I do have, cannot be easily summarized or labelled. I consider myself a moderate in most things, and I never quite know whom I should vote for. I've come to cherish my confusion; it's liberating not to have a label anymore. But I don't regret my libertarian years at all: by questioning even the most basic things about how society is organized, about how the economy works and about how economics itself should be done, I've learned a lot.

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