The Inadequacy of State Capacity Libertarianism

Tyler Cowen, an economist I greatly admire, has written a provocative post for the New Year defending a new concept of libertarianism called state capacity libertarianism. The post should be read in its entirety, but its essence is a critique of the libertarian ideal of a small state as well as an argument that the fixation on the small state is what has made modern libertarianism an inadequate philosophy of governance. I disagree somewhat with his relatively unqualified enthusiasm for strengthening state capacity. But more importantly I dispute that modern libertarianism’s support for a small state is its fundamental defect as a political philosophy.

I agree with Tyler that the government must be adequate to meet challenges that the market and the family cannot. Thus, for instance, the Framers were right to favor an energetic federal government so long as it was focused on matters that the market, the family, and the more local governments could not adequately address. But even here the enthusiasm for state capacity must be qualified by restraints against the danger of rent seeking. For instance, in our original constitution bicameralism and the presidential veto tempered state capacity unless there was a substantial consensus for using it, thereby making it harder for special interests to capture government policy. Unfortunately, the excessive delegation to the modern administrative state makes capture a lot easier. It also, as I have argued in these pages, makes political polarization more likely as there is no need for Congressional compromise. Political polarization ultimately weakens state capacity. I would thus call for focused and restrained state capacity.

This distinction is particularly important in a heterogeneous nation like the United States which is more prone to rent seeking since people cannot regard themselves as part of a common family as people in, say, Scandinavia do (or will until their populations become more ethnically diverse). Denmark, which Tyler gives as an example of a nation with both big government and considerable liberty is not replicable in nations like ours. Moreover, as Mancur Olson has noted, special interests become more powerful as a state becomes more stable and successful. The East Asian nations that Tyler also mentions as having high state capacity grew fastest economically when they were very poor and indeed decimated by wars. Thus, they did not yet face the serious problem of special interest rent seeking.

Surprisingly for an economist, Tyler also neglects the importance of competition among governments as part of his revised libertarian ideal. He complains that government has not fixed things like K-12 education. But the biggest failures here are in urban centers and other neighborhoods where people have not enjoyed exit opportunities. Urban schools districts often spend a lot and in that sense enjoy a lot of state capacity but few good results. Suburban schools are often decent. State capacity is improved by the competition that emerges when public goods are not delivered at the national level. The competition that well-designed federalism or subsidiarity provides is therefore an important component of governance, particularly when that governance has high capacity. Thus, I would further call for focused, restrained, and, where possible, competitive state capacity.

But my largest disagreement is that Tyler misses what is most problematic about modern libertarianism. In my view, modern libertarianism has too narrow a view of social harm and too limited a role for government in encouraging mediating institutions that help ameliorate such harms. Tyler underscores a certain obtuseness on this point by professing not to be able to understand the difference between classical liberalism and libertarianism, except that classical liberalism was a 19th-century philosophy suited to solving the problems of its times, but not ours.

But classical liberalism has enduring lessons for politics. Classical liberalism differs from most modern libertarianism in three important ways. First, it is far more willing to recognize that individual freedom can create social harms that government should help ameliorate—generally indirectly by encouraging certain kinds of associations. Second, it is more confident that something can be said, albeit at a high level of generality, about the good life and good character. It recognizes that civic virtue needs social encouragement. In the long run, a nation can only enjoy liberties with few external restraints from the government if its citizens have strong internal restraints of civic character. Finally, classical liberalism recognizes, unlike many libertarians, that the state has a duty to provide for those who cannot provide for themselves, even while trying to structure aid in a way that prevents a culture of dependency.

Liberalism in the 19th century exemplified these differences. Tocqueville recognized that civic mediating institutions and the habits they inculcated were essential to a free society. Victorian liberals supported aid to the poor but, as the late great historian Gertrude Himmelfarb has described, sharply distinguished between the deserving and the not-so-deserving poor. That distinction not only has good incentives for the poor but helps express the larger social values of honesty, thrift, and self-control needed for a liberal society.

Thus, classical liberalism offers a relevant critique of the modern libertarian movement, its wilder and younger brother. Libertarianism need not be so indifferent to the habits and morals of citizens, even as it ought to be less grudging in taking care of those who cannot care for themselves. Libertarianism cannot succeed as a governing philosophy if it is only a creed of low taxes and personal freedoms, important as these are to good society. It must, for instance, protect the associational rights that help sustain traditional virtues.

The candidacy of Gary Johnson for President in 2016 on the Libertarian ticket exemplified the flaws of modern libertarianism that Tyler has hit upon. He was most well-known by the general public simply for the fact that he used marijuana recreationally. Now it may well be that marijuana should be legalized given the costs of prohibition. But it is a vice, even if not a great one, and should not be celebrated.

In contrast, Johnson did not seem at all enthusiastic about protecting religious liberty, a crucial building block of the mediating institutions that promote the self-restraint and associations that are important to a civic society. He first dismissed the rights of religious believers to choose their associations on moral grounds as a form of discrimination. He then qualified this stance but still opposed the Indiana Religious Freedom Law that was patterned on the federal Religious Freedom Restoration Act, a law that had been passed almost unanimously by Congress in the 1990s. These laws require the government to have a compelling interest before it can burden religious practices. As my friend Mark Movsesian observes, such laws become more necessary to preserve religious practices as the state encroaches on more and more private decision making. It is precisely the kind of law that is necessary to preserve a modern liberal regime, because liberalism should have a special solicitude for the liberties with which citizens form and sustain the institutions, like religious institutions, that fit them for a free society.

A free society today continues to face dangers from big government open to unproductive rent seeking. But the greater threat is probably the rise of identity politics and its tendency toward the dissolution of civic union. Government thus cannot be indifferent to the civic culture that sustains liberalism. Libertarianism, for all its sensible attention to restraining the state, errs when it focuses only on the hardware of government size and design, as opposed to the software of culture that also generates our social output.