The strange, unlamented death of libertarianism

Jacob Weisberg says the final rites over the corpse of libertarian theory, based on how badly the situation has become due to the Bush administration's total devotion to radical libertarianism:

A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from "redlining" minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

There are rebuttals to these claims and rejoinders to the rebuttals. But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong. The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.

To which the rest of us can only respond, Haven't you people done enough harm already? We have narrowly avoided a global depression and are mercifully pointed toward merely the worst recession in a long while. This is thanks to a global economic meltdown made possible by libertarian ideas. I don't have much patience with the notion that trying to figure out how we got into this mess is somehow unacceptably vicious and pointless — Sarah Palin's view of global warming. As with any failure, inquest is central to improvement. And any competent forensic work has to put the libertarian theory of self-regulating financial markets at the scene of the crime.

Remember all those Bush appointees waving their copies of Murray Rothbard's For a New Liberty: The Libertarian Manifesto and Hayek's The Road to Serfdom, while abolishing vast chunks of the federal government, ordering the mass withdrawals of American troops from all foreign lands, and selling off millions and millions of federal properties? Yeah, me neither.

How did those long-standing bastions of New Deal-era socialism, Fannie and Freddie, survive the gutting of all government involvement in the economy?

The answer is, of course, that George Bush is about as far away from a libertarian true believer as you could be without requiring people to refer to you as "Der Führer" or "Dear Leader" or "Big Brother". Big government projects? Check. Massive military spending? Check. Meddling in the free markets? Check. Vast increases in all kinds of regulation? Check. Imposition of further restrictions on individual freedom? Check.

Jeffrey Miron does the heavy lifting to refute Weisberg's bizzare notion that libertarians had anything to do with the current financial mess:

Whatever one's views of libertarian policies, the incontrovertible fact is that the U.S. has not pursued such policies. Not in the past 10 years. Not in the past century. Indeed, except for a brief moment before Alexander Hamilton engineered the first U.S. bailout of financial markets, not ever. If the U.S. had truly been the "Libertarian Land" that Weisberg alleges, a huge range of policies that have helped fuel the current situation would have been radically different.

In Libertarian Land, banks would not be chartered, defined, and regulated by government, as they have been in the U.S. for over 150 years. In particular, banks would have the right to "suspend convertibility," meaning they could tell depositors, "Sorry, you can't have all your money back right now," during banks runs that threatened bank solvency. This is precisely what banks did in key financial panics during the pre-Fed period, when suspension was illegal but tolerated or encouraged by regulators. By so doing, banks reduced the spread of panics and solvent but illiquid banks did not fail in large numbers.

In Libertarian Land, the Federal Reserve would never have been created. This means the Fed could not have turned a normal recession into the Great Depression by failing to stem a huge decline in the money supply. This decline and the related bank failures occurred because the Fed's existence was taken as indication that banks could not, or should not, suspend convertibility, as they had done successfully in the past. Thus in Libertarian Land, the Great Depression would probably not have occurred.

Update: I should also have linked to Matt Welch's round-up of reactions to Weisberg's article.