Liberty and Justice Are Not Irreconcilable
I voted for Gary Johnson (and am a huge fan of Ron Paul), and respect and fully-support the libertarian passions for freedom and free markets.
But I am also a tireless crusader for enforcing the rule of law.
You might assume that these are opposite philosophies. For example, a reader asks:
Your work on the dangers of the American nuclear industry has been really comprehensive, and you have drawn attention to the deception, manipulation, neglect, and willful ignorance of the nuclear industry. For example, I just watched the Al Jazeera video you posted earlier this year (3/12), in which the NRC and the nuclear industry are (rightly) criticized for waiting for harm to happen, instead of preventing it. At the same time, you identify as libertarian, and I believe you supported Gary Johnson in the presidential election. He is opposed to public regulation of industry and has said that post-harm lawsuits -- for example, in medical contexts -- are sufficient to encourage businesses to self-regulate for public safety. Could you please explain how you reconcile the libertarian position against regulation with your clear recognition that too-loose self-regulation of the nuclear industry imperils the public?
Nuclear Power Would Not Exist In a Free Market
Initially, it is undisputed that nuclear power plants would not exist if operators had to obtain funding and insurance [20] through the free market. Private insurers won’t touch nuclear energy. Investors run the other way, because the odds of losing all of their investment are so high.
No private company in the world would operate a nuclear plant unless the government [20] put a very low cap on liability. In many parts of the world, governments cap liability at a mere $13 billion dollars [21].
This is a little insane, given that “the risk of a nuclear catastrophe … could total trillions of dollars and even bankrupt a country” [22].
Indeed [23]:
If there was a free market in energy, nuclear power would be over … immediately.
AP notes [24]:
Nuclear power is a viable source for cheap energy [25] only if it goes uninsured.
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Governments that use nuclear energy are torn between the benefit of low-cost electricity and the risk of a nuclear catastrophe, which could total trillions of dollars and even bankrupt a country.
***
The cost of a worst-case nuclear accident at a plant in Germany, for example, has been estimated to total as much as €7.6 trillion ($11 trillion), while the mandatory reactor insurance is only €2.5 billion.
“The €2.5 billion will be just enough to buy the stamps for the letters of condolence,” said Olav Hohmeyer, an economist at the University of Flensburg who is also a member of the German government’s environmental advisory body.
The situation in the U.S., Japan, China, France and other countries is similar.
***
“Around the globe, nuclear risks — be it damages to power plants or the liability risks resulting from radiation accidents — are covered by the state. The private insurance [25] industry is barely liable,” said Torsten Jeworrek, a board member at Munich Re, one of the world’s biggest reinsurance companies.
***
In financial terms, nuclear incidents can be so devastating that the cost of full insurance would be so high as to make nuclear energy more expensive than fossil fuels.
***
Ultimately, the decision to keep insurance on nuclear plants to a minimum is a way of supporting the industry.
“Capping the insurance was a clear decision to provide a non-negligible subsidy to the technology,” Klaus Toepfer, a former German environment minister and longtime head of the United Nations Environment Programme (UNEP), said.
U.S. News and World Report reports [26]:
The disaster insurance [25] for nuclear power plants in the United States is currently underwritten by the federal government, Cooper says. Without that safeguard, “nuclear power is neither affordable nor worth the risk. If the owners and operators of nuclear reactors had to face the full liability of a Fukushima-style nuclear accident or go head-to-head with alternatives in a truly competitive marketplace, unfettered by subsidies, no one would have built a nuclear reactor in the past, no one would build one today, and anyone who owns a reactor would exit the nuclear business as quickly as possible.”
In other words, this is not a free market. Instead, the public has funded the nuclear industry. As such, we - the owners - should get some control over how nuclear plants operate.
Likewise, the government created the mega-banks [29], big oil [30] and the other mega-corporations.
Free Market Champions Demand Prosecution of Fraud
A strong rule of law is the main determinant of prosperity [31]. On the other hand, failure to prosecute fraud is destroying our prosperity [32].
Nuclear meltdowns, the financial crisis and the Gulf oil spill [33] all happened for the same reason: fraud to make a few more pennies, and a subsequent cover-up to try to protect the wrongdoers and continue "business as usual". And see this [34].
This is not free market economics.
Indeed, the father of free market economics - Adam Smith - leading Austrian economists, and other free market advocates are for the prosecution of fraud [35]:
There is a widespread myth that free market supporters are against regulation or prosecuting fraud [36].
In fact, Adam Smith – the father of free market capitalism – was for regulation of banks, and believed that trust is vital for a healthy economy [37]. Because strong enforcement of laws against fraud is a basic prerequisite for trust [38], Smith would be disgusted by the lack of prosecution of Wall Street fraudsters today.
Smith railed against monopolies and their corrupting influence. And Smith was pro-regulation, so long as the regulation benefited the little guy, as opposed to the wealthiest [37]:
When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour [36] of the masters.
Richard Posner – one of the leading proponents over the course of many decades for removing the reach of the law from the economy – has now changed his mind [39].
So has another leading proponent of deregulation and turning a blind eye towards fraud: Alan Greenspan [40].
While some promoters of a fake version of Austrian economics are anti-regulation and against prosecuting fraud, the main Austrian economists were unambiguously for them.
William K. Black – professor of economics and law, and the senior regulator during the S&L crisis – notes that leading Austrian free market economists said that fraud must be prosecuted [41]:
Real Austrian economists … hate elite frauds and want them prosecuted vigorously. Ludwig von Mises and Friederich Hayek are the two most famous Austrian economists.
Hayek, F.A. The Road to Serfdom
To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies— these tasks provide a wide and unquestioned field for state activity.
The Constitution of Liberty
There remains, however, one other kind of harmful action that is generally thought desirable to prevent and which at first might seem distinct. This is fraud and deception. Yet, though it would be straining the meaning of words to call them ‘coercion,’ on examination it appears that the reasons why we want to prevent them are the same as those applying to coercion. Deception, like coercion, is a form of manipulating the data on which a person counts, in order [36] to make him do what deceiver wants him to do. Where it is successful, the deceived becomes in the same manner the unwilling tool, serving another man’s ends without advancing his own. Though we have no single word to cover both, all we have said of coercion applies equally to fraud and deception.
With this correction, it seems that freedom demands no more than that coercion and violence, fraud and deception, be prevented, except for the use of coercion by government [36] for the sole purpose of enforcing known rules intended to ensure the best conditions under which the individual may give his activities a coherent, rational pattern…..
Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions…. Liberty and responsibility are inseparable.
Mises, L.
Government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies.
Black also notes that fraud is a leading cause of financial bubbles and malinvestment [37] – two of the greatest sins which Austrian economists rightly fight against.
Unless financial fraud [36] is prosecuted, bubbles will be blown … and when they burst, the economy will tank. Fraud – along with bad Federal Reserve policy – is what causes bubbles in the first place.
The Proof Is In the Pudding: Fewer Prosecutions Equals a Worse Economy
The economy is worse than it has been since the Great Depression [36], if not before.
See the connection? See this [43] and this [44].
Everyone Supports Laws Protecting Contract and Private Property Rights
Even the most radical free market advocates support laws protecting contract and private property rights. In other words, they support the judicial branch of government and the basic laws Congress passes to support such rights.
There are obviously good, pro-competitive laws and bad, anti-competitive laws.
Paul Craig Roberts – a true conservative, who was a Wall Street Journal editor and Assistant Secretary of the Treasury under Ronald Reagan, and is widely credited with being the “father of supply-side economics” – points out [45]:
Regulation can increase economic efficiency and … without regulation external costs can offset the value of production.
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Thirty-three years ago in an article in the Journal of Monetary Economics (August 1978), “Idealism in Public Choice Theory,” I developed a model to assess the benefits and costs of regulation. I argued that well-thought-out regulation could be a factor of production that increases GNP. For example, regulation that contributed to the quality and safety of food and medicines contributed to specialization in production and lower costs, and regulations enforcing contracts and private property rights add to economic efficiency.
On the other hand, bureaucracies build their empires and extend their regulations into the realm of negative returns. Moreover, as regulations increase, economic managers spend more time in red tape and less in productive activity. As rules proliferate, they become contradictory and result in paralysis.
I had hopes that my analysis would result in a more thoughtful approach to regulation, but to no avail. Liberals continued to argue that more regulation was better, and libertarians maintained than none was best.
Do Anti-Law Advocates Really Want Anarchy?
All sports need a referee. Some players will be bigger or more talented than others, which is great. They have a better chance of outcompeting the other guy and winning.
But without basic rules and referees, ruthless players might use a knife or kick the other guy in the knee. Perhaps we could suspend all rules, and maybe everyone would whip out a knife break the other guy’s kneecap. That’s fine … but that’s not the game of football.
Radicals who believe that we should not have any laws against fraud are implicitly arguing for anarchy. They might not use that word, but that is what they’re arguing for.
But the same Founding Father who argued for periodic revolutions to keep the government honest also argued against tearing down something unless you have something better in mind to replace it? Thomas Jefferson, the most vocal advocate of the citizens’ right to revolt to ensure honest government also cautioned against tearing something down unless it was for the express purpose of replacing it with something better.
Real, deep-thinking anarchists (as opposed to those using fake anarchy philosophy in order to promote lawlessness by the super-elite) are not for destroying all organization. Instead, they argue for self-organization and self-regulation. See this [46], this [47] and this [48].
JP Morgan and Goldman Sachs aren’t reining in one another’s fraud. Bank of America and MF Global didn’t police each other’s fraud. Tepco and BP didn’t make sure the companies made accurate reports about their safety measures. Solyndra and Koch Industries didn’t guard against abuse by the other company.
So if one wants to argue that the Federal government should not regulate financial players, fine (perhaps our country is too big and complex to manage, and the federal government has become too corrupt) … but who should?
The states? Cities? Communities? Neighbors?
Human beings have the ability to form social contracts. Our D.C. government has largely breached it social contract with the people [49].
But we shouldn’t tear down the federal government unless we replace it with something better.
No one wants to tear down the state of organization so completely that we go back to monkeys (without the ability to talk), or one-celled critters . . . so the question is how do we want to organize?
Do you want to live as a “savage”? In reality, the natives had survival skills, cultural traditions, and knowledge developed over many hundreds or thousands of years (including knowledge gained before the migration from Asia to America), stored in the database of oral traditions. The settlers had traditions and knowledge as well. If we tear away all of that organization, life is going to be pretty challenging.
It is easy for a teenager to criticize his parents, but a lot harder to actually create a better adult life for himself. A teenager looks silly and immature when he criticizes everything his parents do without understanding the challenges he’ll face as an adult. But a young person who rebels against his parents and then creates a better adult life is doing important and heroic work.
In other words, anarchy as an economic model could work if economic players organized in such a way as to police against fraud and criminal behavior (the equivalent of pulling out a knife or taking out someone’s kneecap in the middle of a football game).
This is a long-winded way of saying that we should not stop the government from enforcing fraud laws unless we come up with a more effective way to stop fraud.
The Real Problem ...
While liberals tend to distrust big corporations and conservatives tend to distrust the federal government, it is really the malignant, symbiotic relationship between the two is the root problem [50].
Too much government overreach [51]? Giant unaccountable corporations [52]?
Maybe ... but the root problem is that corrupt government officials and corrupt corporate fatcats have merged into a crime syndicate [53].
Do you get it? Before we can have a real free market, we need to burst the bubble of fraud [54].
Before we can have a functioning government, we need to stand up [51] to corrupt government officials [55].
We all need to step out of the left-right dichotomy which is distracting us and dumbing us down [56].
We need liberty and justice.