CovidDiary Day 5 (Weds March 25th 2020)

Today’s post is slightly more political so if you’re not into that kind of thing…then be sure to read it!

In the wake of Covid-19, libertarianism appears to be on the back foot. From tacitly enforced government social distancing and isolation, to top-down regulation and intervention in markets and business, it looks in many ways like we are witnessing the limits of the libertarian creed…

From my perspective, this marks a positive development. Before I go on, I want to state some of my premises and define my terms: I am wary of those who place unfailing trust either in the market or in the state—these two poles seem to have the common fatal flaw of misplaced trust and a poorly worked out anthropology. What usually functions as a spectrum moving from more statist solutions to more market-centric ones, on closer inspection appears to bend and meet where these two positions are concerned. And yet this is a broken world. The markets are broken, and the state is broken. Because people are broken. When all is said and done, that’s the baseline, the undercurrent of my thinking on the matter.

What sparked my thinking on libertarianism was seeing this piece from James Kirkup (of The Social Market Foundation) on Unherd today. Kirkup tackles the social elements of libertarianism and argues that it places too much faith in the human individual and, more particularly, errs by attributing too much rationality and kindness to the human agent. We have only to see the response of individuals, pre-lockdown, piling into pubs and ignoring government advice to remain socially distant and save lives. The cracks immediately begin to appear in the rational actor theory underpinning social libertarianism .

Libertarianism also reared its head in today’s first episode of Unherd’s new #LockdownTV, with Timandra Harkness and Tom Chivers discussing whether or not the government’s lockdown strategy is utilitarian (more on that another time…).

The other thing that got me thinking was an interesting virtual discussion I had today with a couple of friends today over the government’s handling of the crisis, particularly as it relates to economics and markets. Few topics make my blood run colder than economics (the maxim “man shall not live on spreadsheets alone” just about sums up my attitude on the matter at the moment). But I felt compelled to weigh in…

In the course of the discussion, my friends argued that the market operates as a super intelligence that should regulate itself. Why, they argued, is the government (particularly a Conservative one) intervening with high spending and borrowing when this will only lead to economic decline in the medium to long term? And surely this intervention will result in ineffective, bad businesses being kept alive through government aid when, if the markets were left to run their course, they would naturally and rightly die a death.

I want to engage in a bit of bridge-building here, first.

To begin with, I can agree and acknowledge that free markets have a way of showing up ineffectively run business. There might be some valid concerns here about who is being supported…should the whiskey shop or the boutique sunglasses store on my street receive the 80% government funding to cover wages, we might ask?

Then and again, these businesses (and many like them) are already facing difficulty as a result of being deemed non-essential. They might be able to pay their staffs salaries through the Job Retention Scheme, but the result of being shut for weeks, and probably months, will probably spell the end for them already. Are they to be punished for events outside of their control?

More gravely, Libertarian economics assumes that the market will unfailingly tell us what businesses should survive. But there are clearly some businesses that through no fault of their own have fallen into difficult times and require state intervention. The airline business is just one such example (though there are many). A halt on flights due to lockdown means that no one can fly; with no passengers due to the virus, airlines face severe losses. The UK government has unveiled £330bn of loans to airlines and has recently been considering buying equity stakes. The economic situation of airlines like BA is not the result of poor management but a freak virus.

So I have some practical doubts around the ability of the market to decide which businesses should survive.

But what about moral arguments that often circulate and have to do with liberty from state intervention? To be sure, I value liberty highly. We must remember, I think, that to place absolute faith in the state causes all sorts of problems, ranging from a loss of personal responsibility to more extreme forms of collectivisation that remove the dignity and individuality of the human person by apportioning to everyone the same product (usually having the quality of being equally substandard). I have family who grew up in the Soviet Union and believe me when they say they would rather not return to such a state of political economy.

But, as ever, there are two ways to fall off the horse. If we can place too much faith in the state, then we can also do the same with markets. The credo of economic libertarianism is the freedom of markets guided by the invisible hand. This is, of course, an overt reference to Adam Smith’s The Wealth of Nations.

And yet, as Jesse Norman has powerfully argued, Smith is radically misunderstood when he is claimed as the father of laissez-faire economics (moreover, the invisible hand appears only once in The Wealth of Nations).

Smith, Norman argues, was a proponent of government regulation under certain conditions. In his thought (and in his time), markets operated differently, were embedded and embodied with a set of social norms rather than some calculating “super-intelligence”. As Norman puts it,

markets for Smith are very different to those of economists today. They are not the disembodied mathematical constructs of modern economics and policymaking, and his view of individuals is not that of a desiccated economic atomism. Rather — recalling his insights about language and ethics — markets are living institutions embedded in specific cultures and mediated by social norms and trust. They shape and are shaped by their participants, in a dynamic and evolving way. They often have common features, but they are as different from one another as individual humans are: markets for land and labour and capital, asset markets from product markets and all the innumerable rest of them. Yes, markets typically generate economic value, and they are unmatched in their ability to allocate goods and services and encourage innovation and technological improvement. But…what matters is not the largely empty rhetoric of “free markets”, but the reality of effective competition. And effective competition requires mechanisms that force companies to internalise their own costs and not push them on to others, that bear down on crony capitalism, rent extraction, “insider” vs “outsider” asymmetries of information and power, and political lobbying.

One of the biggest problems I have with libertarian absolute faith in the market, then, is that it’s lost what markets are for. To coin a phrase, markets are for people and people are not for markets.

Pre-Covid, I would have said that I am in favour of capitalism with safety nets (of course we need to define what we mean by capitalism—this article is a good place to start). I did, and still do, advocate greater regulation of companies like Amazon, Uber and Facebook.

But if governments should regulate free markets in “peace time” then a fortiori should they do so in extreme times such as ours, where perfectly good businesses are rent asunder by circumstances beyond their control.

Rather than placing all my faith in the state or in the market, I would want to espouse a realism that acknowledges the inadequacies of both, precisely because both are ultimately human, which is to say socially embedded, institutions. There is much to say here about a constructive view of the relation between market and state. I have already discussed one example above, but here and here are other, albeit different, attempts that are worth engaging with.

If I was to go one step further, and venture beyond economics and into theology, I would want to say that absolute faith is best placed in One who does not fail us. Even when market and state forsake us, He will take us up.

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