I know quite a few Libertarians. A disproportionate number of them are small business owners, savvy, or at least more entrepreneurial than most people I know. I have come to recognize what seems to be a blind spot, of sorts, in their economic view point that I was at a loss to understand. Recently, though, I read an article which has really helped me gain in insight into their perspective.
First, let me describe the blind spot. On a micro-economic level, basically the ability to run a business, Libertarians generally come across as being just about spot on. They know the tax code, how to benefit from it, how to pick a good locale for a business, inventory management, marketing, you name it. But at the macro-economic scale, anything above the scale of a business, their logic seems to break down. One example seems to be economy of scale. In a southwestern city there was a single contractor for garbage collection, and, the Libertarian argument went, this led to higher costs due to lack of competition. Now if you follow the pure, free market assumption, this must be true. But it makes a simple error by over looking fixed costs. In order to get the lowest cost for city-wide garbage collection, you need to have the lowest per unit cost of collecting it. IF you have one agency (public or private doing the work) then you can minimize the amount of machinery, management, facilities for parking, logistics, and so on. Assuming that the costs for these fixed expenses are kept minimal, then the cost will certainly be lower than having multiple agencies, each needing to separately perform these tasks. TO extend the nature of the blind-spot the Libertarian proposal would not have sectioned up the city but allowed individual households to select their collector. This would introduce inefficient variable costs as well since you would certainly have different agencies running vehicles down the same general routes, each vehicle burning fuel and each vehicle being driven by a worker who is paid hourly.
Given how obvious it is that the free-market approach can not possibly produce the lowest overall cost as the regulated monopoly approach, why then would intelligent people make the assessment to the contrary? Here I think the nature of the blind-spot reveals itself. It is ideological, in a manner of speaking, but is mostly driven from a point of view. If you are an entrepreneur or small business owner, then allowing every household to select their service levels the playing field and allows entry into markets rather than selecting a single provider.
The Libertarian mindset mindset wants lower ease of entry into these closed markets AND fears that corruption (and hence inefficiency) inevitably emerge from having a locked-in provider. And there is ample evidence of the this unfairness in many cases. You see this evidenced in the number of government employees who have retirement benefits that are simply unjustifiable. All in all I think that many civil servants are underpaid- teachers, policemen, and so on (although their pension plans, supposedly to make up for being underpaid, are certainly far too generous in many cases). I think it is these examples of corruption (for lack of a better word) that Libertarians are effectively coming out against. The economic argument of efficiency clearly falls flat. But when you translate it to an ideological outcry against corruption, the nature of the Libertarian "blind-spot" becomes very much clearer and very much more understandable.
The fact that this perspective has emerged (articulated or otherwise) is a sad commentary on the level of trust that government has amongst a large fraction of the population.
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Kerry Lauerman
Joan Walsh
Salon.com
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