A Critique of Libertarian Paternalism

In the September 26, 2007 Future of Freedom Foundation article "Libertarian Paternalism," Jacob G. Hornberger provides a critique of libertarian paternalism:

On April 1, 2007, the New York Times published a review of Brian Doherty’s new book, Radicals for Capitalism, an extensive history of the libertarian movement that focuses on such libertarian luminaries as Leonard Read, Ludwig von Mises, Friedrich Hayek, Ayn Rand, and Milton Friedman.

The book review, “Free for All,” by David Leonhardt, leveled several criticisms at both the book and the libertarian movement, but the one criticism that really caught my attention appeared at the end of the review:

"In fact, across a range of major issues — energy policy, health care, retirement savings — a hybrid form of laissez-faire capitalism and collectivism seems to be ascendant. The market will be allowed to work its efficient magic, but government will step in to correct the market’s failures. “Libertarian paternalism” is the name two University of Chicago professors, Cass Sunstein and Richard Thaler, have devised for one version of this philosophy."

What more insulting and devastating critique of the libertarian movement than that? And yet, the problem is that it’s true. For the past several years, some libertarians have promoted both minor and major reforms of socialist programs in the name of libertarianism. Why would it surprise us that people would naturally conclude that libertarianism is a hybrid of freedom and collectivism and that libertarians stand for “libertarian paternalism” or even “libertarian socialism”?

Consider, for example, school vouchers, which some libertarians have advanced as a libertarian proposal, employing such libertarian rhetoric as “choice” or “free-market education.”

Yet, what really is a system of school vouchers? It is nothing more than a reform of the socialist government-school system. Yes, it might improve the state’s educational system and, yes, it might provide parents with more options within that educational system. Nonetheless, it is not libertarian in the least. It is simply a reform of a socialist program.

Socialism involves the state’s forcible taking of one person’s money and giving it to another person. Isn’t that what school vouchers do? They involve the state’s taking one person’s money — a person who might not even have children — and giving it to another person in order to help him educate his children.

In principle, school vouchers are no different from, say, food stamps, a socialist welfare program that libertarians (and conservatives) have long condemned. Food stamps involve a process by which the state taxes some people in order to provide food assistance to other people. School vouchers involve a process by which the state taxes some people in order to provide educational assistance to other people.

As libertarians, all of us would agree that people should be free to advance any program they wish. But the problem is that when such reform programs are promoted as libertarian proposals, people get the impression that this is what libertarianism is all about — using the state to take one person’s money in order to give more “choice” or more “freedom” to another person. Couldn’t it be said that food stamps also give people more “choice” and more “freedom”?

Therefore, wouldn’t it be better, from the standpoint of libertarianism, if libertarians who advocated such welfare-state reform plans described them for what they actually are — conservative reforms of socialist programs? After all, it’s not a coincidence that the Heritage Foundation, the premier conservative organization in the country, has long supported school vouchers, given that conservatives long ago abandoned any commitment to genuine free-market principles. But what is the average person to conclude when libertarians also support school vouchers and describe them as a libertarian solution to the government-school crisis?

Libertarians often lament that liberals “stole” the term “liberal,” which once meant “libertarian,” and corrupted it to mean a support of the welfare state, the exact opposite of what libertarians stand for. But haven’t libertarians been doing the same thing for many years with the term “libertarian” by promoting conservative reform plans of liberal socialist programs in the name of libertarianism? Isn’t that why there are now people saying that “libertarian paternalism” is on the ascendancy?

What is the average person to conclude when he hears the “libertarian case” for vouchers? Isn’t he likely to conclude that libertarians believe that the state has a legitimate role in education? Would it be unreasonable for him to say, “Yes, I agree with the libertarians that we need a mixture of educational vehicles from which people can choose — public schools, private schools, charter schools, and home schooling. Choice is a good thing!”?

Yet all that is the antithesis of libertarianism, whose genuine principles dictate a complete separation of school and state, just as libertarianism calls, for example, for a complete separation of church and state. After all, can you imagine libertarians calling for a mixed system of state churches, private churches, charter churches, and church vouchers and suggesting to people that that is what libertarianism is all about? Wouldn’t it be better if those who advanced such systems of “choice” emphasized to people that they are conservative approaches to education and religion, not libertarian ones?

Social Security reform

Consider another area that has led people to conclude that libertarians are paternalists — Social Security, a government program that has its roots in German socialism. It’s not a coincidence that the Social Security Administration has a picture of Otto von Bismarck, the “iron chancellor” of Germany, on its website. It was Bismarck who introduced social security to Germany after having gotten the idea from German socialists.

Libertarianism stands for the principle that people should be free to keep their own money, handle their own retirement, and take care of their own parents and others through voluntary charity. That’s what genuine freedom is all about — the freedom to be responsible or irresponsible, the freedom to honor one’s parents or not, the freedom to help those in need or not. If people are forced to be responsible or caring, then they cannot truly be considered free.

Under Social Security, the state forcibly takes a portion of people’s earnings and distributes them to the elderly. Despite the illusion that the government has created with IOUs issued to the Social Security Administration by the Treasury Department, and contrary to what people have convinced themselves over the years, there is no Social Security fund and there never has been. The idea of a Social Security fund has long been a deception by the state and a self-deception by the citizenry. It consists of nothing more than IOUs issued by the Treasury Department in exchange for the cash that the Social Security Administration has collected, IOUs that cannot be paid until the government first raises the money (by additional taxes) to redeem them.

Thus, in actuality Social Security is a straight socialist transfer scheme — one in which the state takes a young Peter’s money to distribute it to an elderly Paul. In other words, it is a classic socialist or paternalistic program, one in which people look to government to play the role of a parent watching over and taking care of his adult children.

Yet for the past several years what some libertarians have done is to adopt conservative reform proposals and repackage them as libertarian solutions to the Social Security crisis. The Social Security reform plans come in a variety of packages, but they all revolve around the rhetoric of “choice,” just as school-voucher proposals do. Under these “choice” proposals, the state continues to run the Social Security program, but people have the “freedom” to direct the state to deposit and invest their money (which the state takes from them) into a particular fund selected by the taxpayer. It comes as no surprise that the fund to be selected must come from a list of state-approved funds.

Even conceding that a Social Security system in which people have “ownership” rights in their state-mandated retirement funds is an improvement over the current Social Security system, is it really legitimate to call such a system libertarian? Isn’t it nothing more than a conservative reform of a socialist program, albeit a reform that improves the program? Doesn’t it retain the state’s role in the areas of retirement and charity? Doesn’t it accept the underlying premise that the state has a legitimate place in directing and manipulating what people should do with what is supposed to be their own money?

Moreover, all the Social Security reform plans call for continuing to pay current Social Security recipients, which means continuing the socialist process of taking money from young Peters to pay elderly Pauls.

There is no way that any of the Social Security reform plans can legitimately be considered libertarian. Leaving the state in charge of retirement and continuing to use the coercive mechanism of the state to fund Social Security payments is the very antithesis of libertarian principles. Libertarianism is the absence, not the presence, of government involvement in people’s peaceful choices, especially with respect to what they do with their own money.

What’s wrong with promoting reform of Social Security? Nothing, so long as promoters emphasize that what they’re promoting is nothing more than a reform of a liberal social-welfare program. The problem arises when they describe such reform plans as libertarian, because then people are likely to reach the conclusion that libertarians believe in a hybrid form of free-market socialism, in which it is the job of the state to take care of people and in which it is the job of the free market to improve the state’s socialist programs.

Health-care reform

The principle is the same with other reform programs, such as those pertaining to Medicare and Medicaid. Rather than simply call for a repeal of these two socialist programs, some libertarians call for “choice,” which entails, for example, a medical IRA in which people can deposit a tax-deductible portion of their income into a special account to help with medical expenses.

Again, the problem arises in their failure to describe such IRAs as nothing more than a conservative plan to fix a liberal socialist program. By communicating to people that medical IRAs are a libertarian approach to health care, they suggest that libertarianism stands for the principle that the state plays a legitimate role in health care, when, in fact, that is the antithesis of libertarianism.

I recently met a man who described himself as a “moderate libertarian.” From the context of our subsequent conversation, it was clear to me that by that term he meant that he believes in such things as Social Security, Medicare, public schooling, and economic regulation, albeit all in a reformed or improved way. In actuality, he was a conservative, not a libertarian. My hunch is that the reason he believed he was a “moderate libertarian” is that he’s come to believe that libertarianism means a hybrid of socialist programs and “free-market” reforms.

“Contracting out” reforms

Another problem area involves the contracting out of government services, which is often billed as libertarian. Consider, for example, the Interstate Highway System, a public-works, government-owned boondoggle that was modeled after the National Socialist autobahn system in Germany.

The libertarian position, which is based on the principles of private property and free markets, is simply to sell the Interstate Highway System to private owners and leave the pricing mechanism to the free market, i.e., to the interactions between owners and consumers. But because some libertarians consider that too “radical” a solution to suggest to people, they instead come up with reform plans that they promote as libertarian.

For example, one proposal might be to close down a state’s paving department and contract out the paving to private companies. Obviously, such a proposal would constitute only a reform of how the state operates its publicly held highways. Yet some libertarians would advance such a reform as libertarian because it involves contracting out the paving of a socialist project to private companies.

Another example involving roads might be proposing special toll lanes or varying toll rates according to the time of day in order to alleviate traffic congestion. Libertarians often advance such proposals as libertarian, when in fact they are nothing more than conservative ways to reform the socialist road and highway system.

Libertarianism or reform?

Ultimately, every socialist reform plan is doomed to fail because, as Ludwig von Mises and Friedrich Hayek argued so well, socialism is inherently defective. However, if people believe that such reforms constitute libertarianism, then in their minds what will have failed is not socialism but rather libertarianism.

Unfortunately, most Americans remain wedded to the principles of the socialistic welfare state and consider it too “extreme” to repeal, not reform, socialist programs. Thus, they’re likely to be much more comfortable with a libertarianism that isn’t too “extreme,” that is a libertarianism that doesn’t abolish their socialist programs. So they’re much more likely to sign on to and support libertarianism if it involves keeping their socialist programs intact and even using the free market to reform and improve them.

But what does that methodology accomplish? Doesn’t it simply continue the status quo, albeit in a reformed way? And doesn’t it end up confusing people about the true meaning of libertarianism and the genuinely free society?

Obviously the arguments for libertarianism are significantly different from those in favor of reform. For example, suppose a libertarian who is advancing libertarianism and a libertarian who calls for reform of socialist programs are giving speeches in front of the same audience. The libertarian must convince people to challenge the role of the state in such areas as education, health care, and highways, not a simple task, especially since nearly everyone has grown up with state involvement in these fields. On the other hand, all the reformer has to do is tell people, “You don’t have to give up any of your programs. I’m here to tell you how to improve them with free-market principles.”

Thus, advancing libertarianism is much more difficult than advancing conservative reform. Telling people what they need to hear is a much more difficult task than telling people what they want to hear. Moreover, everyone knows that it is a much more difficult task to persuade people to abandon the paradigm to which they are accustomed in favor of a new paradigm, even if they become convinced that the old paradigm is inherently defective and that the new paradigm will improve their lives. Change, especially radical change, is difficult for most people.

If we are ever to restore economic liberty to America, we must advance libertarianism, not reform of socialist programs. While reformers sometimes suggest that their reforms will inevitably lead to the eradication of the programs they’re reforming, that’s not realistic. After all, why should people conclude that eradication is desirable, when the reformer himself has convinced them that their socialist programs are capable of being reformed and improved with “free-market” plans? If the reformer himself doesn’t believe in libertarianism enough to call for it openly and forthrightly, how likely is it that the person who accepts his call for reform will become a stronger advocate of eradication than the reformer? Moreover, once the reform is adopted, the reformer himself has a vested interest in the success of his reform, which obviously means keeping the program in existence.

A revival of economic freedom in America depends on the power of pure libertarian principles and ideals. Compromise and dilution of libertarian principles through proposals to reform socialist programs only impede our goal of achieving a free society. To restore economic liberty to our land, we must advance libertarianism, not libertarian paternalism or libertarian socialism.

Jacob Hornberger is founder and president of The Future of Freedom Foundation.

This article originally appeared in the June 2007 edition of Freedom Daily.