View source for Libertarianism is an Ideology Built on Neoclassical Economics

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{{DES | des = "One of the things that has always put me off libertarianism is that it clearly has neoclassical economics at its heart. The only difference is that all of the flaws – assumptions, rational economic man, framing issues as governments versus markets – are transposed onto a political ideology." | show=}}
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One of the things that has always put me off libertarianism is that it clearly has neoclassical economics at its heart. The only difference is that all of the flaws – assumptions, rational economic man, framing issues as governments versus markets – are transposed onto a political ideology. After all, it’s no coincidence that much of what libertarians perceive to be objectively bad for the economy is also morally objectionable to them. But once you analyse from a  non-neoclassical perspective, a number of substantial flaws appear.

For example, the central libertarian idea that people should be ‘Free to Choose‘ becomes nonsensical once you analyse it from the premise that people are not rational.  The problem here, as Thaler and Sunstein detail in Nudge, is that people are constantly having their decisions influenced by advertising, culture, framing and various cognitive biases. Saying that governments are ‘intervening’ in people’s choices makes little sense because people’s choices are always influenced. In fact, the most libertarian argument is for governments to regulate packaging and advertising so people’s choices are influenced as little as possible. If you disagree with this because you don’t have faith in the government being able to steer people’s decisions right, then you are putting your faith in the government being able to frame choices in a way that doesn’t steer people’s preferences at all, which is actually far harder and probably impossible.

The ‘property rights, contracts, force, fraud and theft’ prescriptions of the more hardcore libertarians are reflective of neoclassical economics, as they are, in fact, all that would be necessary for the world to resemble a demand-supply diagram, if the assumptions held. Unfortunately, people do not behave like robots, so they need strong political and social institutions that create trust and cohesion to engage in transactions (trust has actually been cited as a major reason for the slow growth of many developing economies). Defining property rights and fraud is also incredibly complex and open to debate, but neoclassical economics doesn’t really discuss the law in any detail, so, naturally, neither do libertarians. Furthermore, the naive idea that force, fraud and theft can just be rattled off like that ignores the fact that those 3 words basically describe the history of mankind. Again, this is simply not mentioned in textbooks.

Taxation as theft also has its roots in neoclassical framing. In neoclassical economics, the economy is presupposed as arising out of nowhere, and the government then ‘intervenes’. Taxes are a distortionary, external effect on the ‘free market’. This is analogous to the idea of the government coming along and ‘taking’ your income that pervades libertarianism (and often popular culture). This ignores the fact that pretax income is just a money flow that has arisen due to the institutions set up by government, and as a result of the way these institutions were set up. If government policy were changed, the pretax income of many would change; there is nothing inherently just about it. Furthermore, even after tax, income is far higher than if the government didn’t exist, because then the economy as we know it would not exist. The concept of taxation as theft becomes nonsensical as libertarians are forced to accept that they are privileged to be taxed.

Libertarianism completely neglects work and workers. The idea that it is a freedom maximising individualistic belief system ignores work in the exact same way neoclassical economics does – the firm is a ‘box’ where inputs go in and outcomes go out, and we don’t really look into what happens inside it, outside of various ‘marginal’ curves.  Libertarianism, like neoclassical economists, is based around the notion of consumer sovereignty, and so the only way it can deal with work is simply to ignore it – the only time Libertarians discuss work are with dismissive assertions like ‘workers should negotiate their own conditions’. The problem is that this ignores power (like neoclassical economics), and the fact that capital is scarcer than labour (despite teaching this explicitly elsewhere). This means working conditions, wages and hours are not determined by individuals engaging in mutually voluntary transactions but by capital*, which naturally has more bargaining power.

How do libertarians deal with the fact that their ideology is built on highly flawed theories? By mocking the real world! Lecturing workers for not accepting pay cuts (which their theory is wrong about, incidentally), attacking institutions that conflict with their policy prescriptions, ridiculing inequality considerations as simple ‘envy‘. Furthermore, they simply implement their policies without considering the starting point, much like neoclassical economics. Effectively, they are saying that even though the world doesn’t behave like the textbooks, we should act like it does, and ridicule or ignore it when it doesn’t. Obviously, that has worked out pretty well.

*I am aware capital is not homogeneous but it can be thought of as an emergent property – even individual firms do not have control over the length of the working week, for example.
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