Libertarianism and Poverty

Introduction

Libertarianism is a set of ideas familiar to most people with an interest in politics and political philosophy. Its primary philosophical base is the concept of liberty based on their definition of non-coercion. One statement of principles can be found on the Libertarian Party webpage at http://www.lp.org/issues/ :

Libertarians believe the answer to America's political problems is the same commitment to freedom that earned America its greatness: a free-market economy and the abundance and prosperity it brings; a dedication to civil liberties and personal freedom that marks this country above all others; and a foreign policy of non-intervention, peace, and free trade as prescribed by America's founders.

This statement would find strong agreement with seminal libertarian thinkers such as Robert Nozick, Milton Friedman, Friedrich Hayek, Murray Rothbard, David Boaz, and David Friedman. While these thinkers may differ in details such as advocating a minimalist, night watchman state as opposed to no state at all, they remain similar in their call for less government and fewer restrictions(or no restrictions at all) on markets. Though libertarian stances on some social issues are laudable, the economic ideas of libertarianism are often at best naive, at worst cruel and working directly against the ideas of liberty that its adherents claim to stand for. This essay is addressed to claims of libertarians that their policies would increase the liberty and prosperity of the poor(1), and to the measurable claims of the same from libertarians who argue based on appeals to the idea of natural law. In the following paragraphs, I will examine whether libertarian prescriptions will actually lead to the claimed improvements, and show that they do not.

I'd like to address three issues on which libertarians are almost universally in agreement: the repeal of welfare, the repeal of the minimum wage, and the repeal of state subsidization of housing. The moral outcomes, economic analysis, and historical track records of these ideas are unappealing. I will begin by sketching a brief outline of various libertarian ideologies and delineating which groups I am addressing. After that, I will introduce and justify the moral, econometric, and historical grounds for argument. Finally, I will run through the three issues and a few common libertarian rebuttals with respect to the moral, economic, and historical arguments.

How I Approach Libertarian Argument

Libertarians can be divided into two primary groups: natural rights libertarians and utilitarian libertarians. Natural rights libertarians, such as Boaz(2), Nozick, Rothbard(3), and to a large extent the Libertarian Party(4)defend private property and laissez-faire markets on moral grounds based on ideas of natural law. Such libertarians usually regard taxation as theft and/or slavery(5). Utilitarian libertarians(sometimes referred to as empirical libertarians), such as Hayek(6), and the Friedmans (7) (8), argue that libertarianism will maximize the total personal liberty and prosperity in a society. Additionally, libertarians define freedom as "the absence of coercion or restraint; it includes political liberty, free speech, and economic freedom."(9)

Both natural rights libertarians and utilitarian libertarians make measurable claims. I am not arguing their philosophy, but rather the real-world claims regarding the poor that they may make regarding the results of their policies(10). In addition, I am primarily addressing the claims of minarchist and anarcho-capitalist right-libertarians rather than left-libertarians(11).

There are two primary moral ways in which libertarian economic ideas can be attacked: The first is on what the majority of people would describe as moral grounds, for example, that enabling the poor to have a fighting chance at escaping poverty(or their children escaping poverty) by working hard, getting an education, and similar means is a good thing. The second is that libertarian ideas, intended to prevent coercion, not only fail at this but actually create even greater coercion.

Additionally, there are two arguments not based on moral grounds by which libertarian economic ideas can be attacked. The first of these is on the basis of econometrics- defined (12) as "application of mathematical and statistical techniques to economics in the study of problems, the analysis of data, and the development and testing of theories and models." The second is by examining the historical results of the application of libertarian economic ideas.

Libertarian Morality

With respect to the first type of argument on moral grounds, freedom and the chance for upward mobility is often justified by people on the grounds of natural law. Even if one does not believe in the existence of natural rights, if one looks at cultures worldwide- including that of libertarian ideas- "freedom" is almost universally seen as good, and the belief that improving the lot of the poor(13) is also seen as good. Therefore, if we show that the state of the poor is made worse off by libertarian policies, we will have achieved this argument.

Regarding the second of these methods, libertarians define freedom as the absence of coercion; in other words, the absence of a violation of rights. Let us examine the definition of "coercion" by the radical libertarian Murray Rothbard. Rothbard considers any "voluntary exchange," i.e. an exchange without threat of overt physical violence, to be free of coercion, even if the so-called "voluntary exchange" was made when one party is at great economic disadvantage to the other(14). This includes times of extreme unemployment(15), where starvation of an unemployed worker and his family is a possibility. Marc Linder and Ingrid Nygaard have shown that employers often denied workers bathroom breaks until federally mandated to provide them in 1998(16), which often led to health problems such as hemorrhoids, urinary tract infections, and renal damage. Rothbard, evidently, would consider the case of workers denied the right to use the bathroom at work free of coercion, since the workers' subservience came without the threat of direct physical violence- despite the fact that such subservience led to harm which, if inflicted immediately, would certainly be classified as violence. It seems incredible to describe this exchange as free from coercion by any conventional definition, and this empirical example clearly illustrates the flaws with Rothbard's definition. Indeed, Rothbard uses a flawed definition of "coercion" so far from common parlance that we shall look for a better definition of "coercion" which nonetheless agrees with libertarian writers.

Robert Hale, best known today among legal academics for his groundbreaking work in market relations and coercion(17), argued that coercion was not something limited to governmental actions, or private actions which threaten physical harm. Instead, "coercion" describes to some extent all private action. Any differences in coercion are purely a matter of degree along a continuum rather than a black and white distinction(18). Hale further argued that coercion "rarely took the form of direct physical compulsion that deprived individuals of all choice. Rather it operated as background constraints on the universe of socially available choices from which an individual might 'freely' choose."(19).

"Even a slave makes a choice. The compulsion which drives him to work operates through his own will power. He makes the 'voluntary' muscular movements which the work calls for, in order to escape some threat..." (Robert Hale, Bargaining, Duress, and Economic Liberty, 43 Columbia Law Review 606, 1943)

Though some may attack Hale's view of coercion as meaningless if taken aggressively, due to its ability to define virtually everything as coercion, Hale made clear that a distinguishment between coercion and freedom can be made for legal purposes. He noted that when "the will to do the act is itself brought in to existence by compulsion," such an action may be regarded for purposes of political intervention as coercive(20). Hale's view can be taken in combination with Friedrich Hayek's The Constitution of Liberty, in which Hayek argues for a method of distinguishing coercion from non-coercion. Hayek states that "By 'coercion' we mean such control of the environment or circumstances of a person by another that, in order to avoid greater evil, he is forced to act not according to a coherent plan of his own but to serve the ends of another. Except in the sense of choosing the lesser evil in a situation forced on him by another, he is unable either to use his own intelligence of knowledge or to follow his own aims and beliefs."(21) Hayek elaborates on this by saying that coercion implies "the alternatives before me have been so manipulated that the conduct that the coercer wants me to choose becomes for me the least painful one." (22)

The pragmatic implications of this definition based on Hale and Hayek finds support amongst libertarians like David Friedman, who make their arguments based primarily on practical grounds as opposed to moral grounds. David Friedman notes that in a case where the percentage of population needed to form an army is so high that there are simply not enough patriotic, altruistic, adventure-loving, or unreasonably optimistic recruits available, "Under such circumstances, an army could be recruited without a draft by paying very high salaries and financing them with taxes so high that anyone who does not volunteer starves to death. The coercion of a tax is then indistinguishable from the coercion of a draft."(23). This implies that when looking at real-world effects, it is the actual effect on the victim which defines coercion, not the intrinsic qualities of the actions of the oppressing party. Hayek also notes that "there are, undeniably, occasions when the condition of employment creates opportunities for true coercion. In periods of acute unemployment the threat of dismissal may be used to enforce actions other than those originally contracted for. And in conditions such as those in a mining town the manager may well exercise an entirely arbitrary and capricious tyranny over a man to whom he has taken a dislike."(24)

As a definition of coercion based on the ideas of Hale and Hayek is more plausible than that of Rothbard's, we can use the definition based on Hale and Hayek when examining real world situations- and show that, far from increasing liberty by reducing coercion, the implementation of libertarian ideas would actually reduce it. The definition of coercion we can draw from Hale and Hayek is a larger, more comprehensive definition than that of Rothbard because it covers not only includes the theoretical liberties one might possess(for example, the legal right to change employment), but also the practical means of doing so(the ability to do so without, for example, being blacklisted- a variant of employers being able to hire whoever they wanted). Possessing a theoretical right while having zero chance to actually exercise said right is no different from not having the right at all. For these reasons, Hale and Hayek's ideas on coercion are more plausible than Rothbard's, and by extension, their version of liberty superior to Rothbard's. Thus, if the econometric and historical results of libertarian policies show an increase in the practical coercion as defined by Hale and Hayek, libertarianism has worked against the very principles it claims to support.

These two moral concepts, the ability to get ahead in the world and the concept of coercion, tie in heavily with econometrics and actual historical data, in that econometrics and historical results demonstrate the libertarian failure to produce the desired moral results discussed above. We can now apply these two moral concepts in our analysis of actual econometric and historical data to demonstrate the libertarian failure to produce the desired moral results.

Econometrics of the American Welfare State and the Historical Results of Laissez-Faire in Chile

It is fair to examine the econometric analysis and historical record of the free-market capitalist ideas that would be in effect in a libertarian society. As the noted libertarian anarcho- capitalist David Friedman writes in his The Machinery of Freedom, "Some anarcho-capitalists do not [defend the historical record of capitalist societies]. They concede the justice of many of the usual attacks on 'capitalism,' but argue that everything would be different if we could get rid of government. That is a cop-out. Human beings and human societies are far too complicated for us to have confidence in a priori predictions about how institutions that have never been tried would work."(25) That is a fair statement, and so we will examine the econometrics of what would happen if the United States implemented libertarian economic policies.

If looking for real-world historical scenarios, Chile is a prime example of libertarian ideas at work. Though Chile did not get rid of restrictions on free markets, it is the closest example of such a state in modern history, and, by the standards of the David Friedman quote above, is certainly subject to examination. For this reason, I will be giving examples from Chilean history when discussing the impact of policies such as the repeal of the minimum wage. The economy of Chile from 1973 to 1990 was one in which a nearly unrestrained free market was turned loose with the full support of the government. The "Chicago Boys," a group of Chilean economists who received graduate training in the 1950s and 1960s at the University of Chicago under free- market advocates such as Milton Friedman and Arnold Harberger, were put in charge of reshaping the country's economic policies. Milton Friedman, Harberger, and Friedrich von Hayek all visited Santiago- Milton Friedman would even give a master lecture on television(26) as well as a one-hour course in economics to the dictator Auguste Pinochet(27). Joseph Collins, citing Shirley Christian, states "At least fifteen Chicago Boys would occupy top policy-making positions in the Pinochet military government."(28) Despite the authoritarian social policies of Auguste Pinochet, he gave free rein to the Chicago Boys to implement their economic ideas- possibly because he wanted to be remembered for "a historic act of national renewal, and he decided these bold technocrats held the key to a new, prosperous future that would forever distinguish his rule. In return, Pinochet was willing to guarantee protection from all political pressure."(29). This protection from political pressure would be necessary, as the economic measures proved unpopular enough that military intervention was needed to suppress the civil unrest the measures spawned(30). The Chicago Boys, working from libertarian economic ideals, promptly implemented policies which rolled back work laws, privatized health care, drastically reduced subsidized housing, and allowed wages to plunge. When we examine this historical example, we will find that the Chicago Boys' policies dramatically reduced the economic well- being and freedom of the poor.

Welfare and the Minimum Wage: What to expect in America if Libertarian Policies are Implemented

The poor- both the recipients of cash from the Temporary Assistance for Needy Families(31) as well as low-wage workers- are already in a difficult position. The lives of the working poor are marked by fragility, where one disaster- a brief layoff or a sick child- will place the family into dire circumstances(32). In the next few paragraphs, we will examine the effects of libertarian policies on the already precarious state of the poor.

The repeal of welfare programs is called for by most right-libertarians: The Libertarian Party(33), David Friedman(34), Murray Rothbard(35), and the Mises Institute(36) are all in favor of getting rid of welfare(37). Some, like Robert Nozick(38), even state that compulsory taxation for welfare purposes is equivalent to forced labor. This includes the payments most commonly associated with welfare- the Temporary Aid for Needy Families- as well as programs like food stamps and subsidized housing. Libertarians tend to argue for this repeal based on two claims- the first being that such a redistribution of wealth infringes on the liberty of those being taxed, and that second being that the poor will actually be better off(39) if welfare were abolished. As we are examining specifically whether libertarian ideas really aid in fighting poverty, we will focus on the second reason.

The usual implication behind the speech of libertarians calling for the repeal of welfare is that those taken off welfare will now find jobs to support themselves. This idea is usually bundled with calls for the repeal of a minimum wage(40). As the interactions of these two policy changes feed off each other, we shall examine them together.

Most workers earning the minimum wage, or wages very close to it, are in jobs which are considered unskilled or minimally skilled employment. The classic example of this is the "McJob," the stereotypical burger-flipping fast food employment. Similarly, most welfare recipients have few marketable skills, and very few have college degrees. Many do not even have high school diplomas or GEDs. The repeal of welfare would force current welfare recipients to find jobs with extreme urgency- after all, if the "safety net" of welfare disappeared, then the lack of a job means that one would have trouble feeding one's self, making the search far more urgent. As most of these workers are unskilled, minimally skilled, or lack the proper credentials(i.e. a high school diploma, GED, or often a college degree) for better jobs, this will inject a massive increase of comparatively low-skilled laborers into the market. These workers will compete for the jobs which require few skills or credentials- in other words, low-wage jobs. Combined with the lack of a minimum wage, a labor glut will cause wages to plummet even further(41) as employers have their pick of workers and a high unemployment rate discourages workers from leaving a low-wage job to find a better one(42). As the earnings from a full-time minimum wage job fail to cover the full cost of living for a single adult(43)- much less a family- David Friedman's call for repeal of welfare as well as the minimum wage would make a family even worse off than they are currently, as they will lack both welfare benefits and the wage they earn will be lower. It is quite probable this would lead to families where both parents are employed yet the family is homeless and often hungry(44). Even if the repeal of welfare was phased in over a few years, it is unlikely that enough jobs could be created to keep unemployment levels down- for example, in New York City in 1998, there were 810,000 people on welfare.(45) Given that New York City's labor market already could not absorb all of the job-seekers(46), it would not be able to absorb a few hundred thousand more workers even if those workers entered over a span of years rather than all at once.

Additionally, the repeal of welfare deprives many who are in the labor force of a desperately needed resource- inexpensive(and sometimes free) child care(47). The working poor often can retain their full-time job, and sometimes a full-time plus an additional part-time or full-time job, because of this availability of child care. In some families, it takes a combination of welfare, off-the-books child care by the person receiving welfare, and the money from a low-wage job by the adult not receiving welfare to get by financially(48). Additionally, if libertarians remove existing government-subsidized child care programs, this problem becomes even worse. Though the most immediate problem is the juggling of work and child care by the working poor, perhaps an even uglier problem is that if the child of a working-poor, single mother is given low-quality care will almost certainly be at a greater risk of illness, injury, or retarded development. Even if one argues that people should not be having children if they are unable to support the child, such theoretical arguments not only ignore the real-world situation but also dismiss the plight of the child. If a libertarian states that he does not care if a semi-permanent underclass is created, and that it's just their own bad luck if a child is born in a slum and has virtually no chance of ever getting out, I will admit that this argument will not persuade them. But for everyone else, this scenario should be deeply disturbing. (49)

Even when one obtains a job, there is no guarantee that hard work will lead to eventual promotion and a more prosperous lifestyle. Often, the number of slots open for, say, a fast food managerial position is dwarfed by the number of aspirants(50). Not many make it to the swing manager position which pays roughly $6 an hour(51), and from that pool, there will be eight to ten swing managers competing for the pair of available general manager positions. Even if one makes it into the swing manager position, the additional pay may be illusory. Managers are often asked to put in voluntary unpaid overtime(52). Were minimum-wage laws repealed, the increases in wages for managers are likely to be similarly depressed, making the escape out of poverty even more difficult- as if the game of musical chairs between worthy applicants competing for those managerial slots was not already difficult enough. Additionally, the pay is low enough that the worker often cannot afford the basic costs of higher education(53), further reducing the chances of moving out of poverty.

The analysis of libertarian economic policies show that the policies will neither help the poor get out of poverty, nor increase the amount of liberty they possess by reducing coercion. Clearly, the libertarian arguments based on moral grounds fails with respect to the econometric analysis.

Chile: Unemployment, Unpaid Overtime, Increased Poverty, and the Degrading of the Minimum Wage

During Pinochet's regime in Chile, the lack of an hourly minimum wage(54) led to expectations that employees work long hours of unpaid overtime. When an employee complains about unpaid overtime, he could simply be fired(55) since high unemployment ensures that there will be no shortage of volunteers to take his place. This effective degrading of the hourly minimum wage was an effect of the free market reaching a balance between employment and wages in the absence of regulation; a regular practice of Chile's construction projects was the weekly queuing up of workers to underbid each other for the week's work(56). Even when the Chilean economy recovered, wages remained low as profits simply went into the pockets of employers(57). Indeed, the rapid growth years of 1986-1989 resulted in no increases in real wages(58), despite a study that estimated that the minimum wage could be increased by 50 percent without increasing unemployment significantly(59). Not surprisingly, the poor remained poor, and the percentage of families in poverty increased. Real wages in 1989 were only 90.8% of what they had been in 1970(60). The real minimum wage dropped 40% from 1981 to 1988(61). As Lois Oppenheim writes, "Does freedom of choice really exist when only a small group has the resources to exercise choice?"(62). The utter lack of ability to exercise a choice is not functionally better than not having that choice at all- and the libertarian policy, rather than increasing the freedom of the poor, drastically reduced it. The historical record of Chile shows that the poor became further impoverished, impeding their upward mobility and reducing their liberty, thereby making the libertarian argument based on moral grounds a failure.

Public/Subsidized Housing

The repeal of funding for public housing would also have adverse effects on the poor. Many low-wage employees can only find affordable housing via public housing(63) Though free- market advocates expect that private contractors could do more to provide decent inexpensive housing than the government, Chile provides an alarming counterexample. From 1974 until the end of Pinochet's reign, the private sector not only failed to shrink the housing deficit which existed in 1974, it actually fell behind as population grew(64). The houses of the poblaciones, or shantytowns, often contained three to five families. As Collins writes, "The percentage of Chileans without adequate housing increased from 27 percent in 1972 to 40 percent in 1988, even though according to neo-liberal social dogma the private construction industry combined with supplemental vouchers for low-income households would solve the housing problem."(65). Imagine how much worse the problem would be if the limited government support of the vouchers did not exist.

Answers to Common Libertarian Rebuttals

One common argument from libertarians is that the repeal of the minimum wage and labor regulations would lead to the creation of more jobs to fight poverty.(66) So what happened in Chile as regulations and wage laws were repealed or loosened? Unemployment, which averaged around 6 percent in the 1960s(67) and dropped to around 5 percent in 1973 before Pinochet took over, averaged 20 percent from 1974 to 1987, peaked at 35 percent in 1982, and even when official unemployment numbers dropped, it was because working one day a week was enough to be considered not unemployed(68). It also spawned other problems for the now unemployed or underemployed, such as alcoholism and depression(69). What are a few of the results that we can expect in the United States? Aside from the previously mentioned study by Linder and Nygaard which suggests that workers will once again be urinating in their pants as bathroom breaks are repealed, the repeal of pesticide exposure laws will likely increase the rate of poisoning in farm workers(70). Additionally, any business failure will lead to the possibility of mass layoffs coupled with the absence of significant governmental help(71) to those laid off.

A common libertarian objection to charges that the repeal of welfare would hurt the poor is that the rich will donate more money to private charities, which in turn would be more efficient than the government. The combination of private charity, churches, communities, and family would be able to "bridge the gap" for those who do not earn enough to support themselves. Clearly, this did not happen in Chile as governmental spending on the poor dropped even as the rich got richer. Malnourishment increased(72), and the number of families which could not afford a basic "basket" of necessary goods doubled in the twenty years leading up to 1989. By that point, fewer than half the families in Santiago could afford that basic basket(73).

The governmental welfare state also provides services that private markets would not do or would do in a less efficient manner(74). As Nicholas Barr points out in his definitive text _The Economics of the Welfare State_, private markets are efficient only if the "standard assumptions" of perfect information, complete markets, perfect competition, and no market failures hold(75). One major example of this type of service is health care(76). The efficiency problems of health care arise largely due to the lack of perfect information(77); for example, the vast majority of people are unable to make independent judgements as to the quality of the health care they would be paying for in a fully unregulated market, as well as being unable to judge the "value" of the health care they would be purchasing with a certain amount of money. In particular, a service or commodity in which the repercussions of mistaken choice are high tends to be less market efficient(78). Barr also notes that "Once a public good is produced, non-excludability makes it impossible to prevent people from using it, hence it is not possible to levy charges(this is the free-rider problem); in such cases the market may fail entirely."(79) Furthermore, Barr shows that if the free-rider problem is nontrivial, private donations will lead to fewer benefits to the poor than the welfare state(80). During the Pinochet regime, Chile sharply reduced state contributions to health services, greatly increased privatization in health care, and removed regulations. This led to less preventive care which in turn led to a greater increase in health emergencies, deterioration in the quality of hospital equipment, hospital overcrowding(81), and the danger of medical quackery(82).

David Friedman further claims that though the poor may be harmed by the repeal of some government programs, they will benefit far more from the repeal of others that would go along with the repeal of the beneficial ones(83). His chief example is Social Security. However, the savings from not having to pay taxes for Social Security is far outweighed by the financial hit the poor will take from the repeal of TANF and the plummeting of wages in the libertarian job market. (84) Additionally, a privatized pension market's efficiency is dependent on the standard assumptions of perfect information, perfect competition, and lack of market failure; at the same time, there must be no unanticipated inflation(85). When Chile largely privatized its Social Security, Chileans often operated from misinformation or outright lack of information(86). Inflation further degraded the benefits, and by 1987, Chilean labor economist Jaime Ruiz-Tagle estimated that only 22 percent of Chilean workers made a salary that might allow them to retire with more than minimum benefits(87).

Conclusion

The libertarian claims that removing governmental programs and regulations such as welfare, the minimum wage, and subsidized housing benefit the poor are simply incorrect. Their claims fail on moral as well as economically measurable and historical grounds, and common rebuttals such as the reply that removing governmental programs like Social Security would counterbalance the loss of welfare likewise fail. Were libertarian policies implemented, the poor will not have much chance to escape poverty, and in order to survive, will have to take jobs where they would be threatened with firing if they took a bathroom break. Their income would be quite low, as high unemployment coupled with the lack of a minimum wage keeps their wages depressed. Despite the impossibility of doing full justice to such complicated arguments in an essay of this length, I hope the reader has found this presentation of the "big picture" regarding utilitarian libertarian claims both informative and thought-provoking.

Footnotes:

1. For example, David Friedman, The Machinery of Freedom: Guide to a Radical Capitalism (La Salle, IL: Open House, 1989) 21-29.

2. David Boaz, Libertarianism: A Primer (New York: The Free Press, 1997) 59-65.

3. Murray Rothbard, The Ethics of Liberty (New York: New York University Press 1998) 3-61.

4. Libertarian Party Platform: Statement of Principles, http://www.lp.org/issues/platform/sop.html

5. Rothbard 161-174.

6. Friedrich Hayek, The Constitution of Liberty (Chicago: The University of Chicago Press 1960) 11-21, see also 133-147, though the whole book as well as Hayek's The Road to Serfdom may be relevant and informative.

7. Milton Friedman, Free to Choose (New York: Harcourt Brace Jovanovich 1980) 6, 9-67.

8. D. Friedman 15-28 and 177-200.

9. Nicholas Barr, The Economics of the Welfare State: Third Edition (Stanford, CA: Stanford University Press, 1998) 46.

10. For example, Libertarian Party: Issues and Positions: Poverty & Welfare http://www.lp.org/issues/welfare.html .

11. A good overview of the types of libertarians can be found at Libertarianism, http://plato.stanford.edu/entries/libertarianism/ .