The libertarian reflex – The dangerous post-Corona cocktail of the other kind

“The Federal Council has acted without strategy from the outset. It is time for the citizens and businessmen to take over again.” Thus begins an appeal by Martin Janssen, professor emeritus of economics, in the Neue Zürcher Zeitung on 13 May 2020 (https://www.nzz.ch/feuilleton/coronavirus-eine-liberale-besinnung-tut-dringend-not-ld.1556237). Anyone who immediately feels reminded of the bawling of the angry citizens and conspiracy theorists is excused, for indeed the author seems to be taking on the same line of thought. But as one reads on, it becomes clear: No, this punch in the notch of populism comes from another side, from a self-declared liberal. Nor is it an irrational attack on the sciences, but rather sees itself as an explicit contribution from the noble tradition of economics. But here, too, it is worth taking a closer look, at it quickly becomes clear that here too the Corona crisis is being used to raise the flag for an ideology that has long since fallen into ruins: the old worldview of neoliberalism, which failed in 2008 at the latest and is now once again shattered in pieces.

It therefore seems as if another group has to be added to the much-described list of right-wing extremists, anti-capitalist leftists, conspiracy theorists, esoterics, vaccination sceptics, anti-Semites, C celebrities, reactionary church representatives and general science sceptics that is standing up in protest against corona virus politics: the ultraliberal despisers of the state who want to see the federal government and the cantons (in Germany: federal states) trimmed. The entrepreneurs will fix it from here, dear politicians. Just give them more power again, or even better: fill the entire government with them. Then all the evils of the welfare state, “a pension scheme that has got out of hand”, “a misguided health policy” will be eradicated.  In view of the damage that this ideology has done, as is particularly visible in the USA and England in the Corona crisis, it must unfortunately be stated that this intellectual brother of the outburst of anger is also highly dangerous and it is therefore a dictate of intellectual integrity to speak out against it.

First, it is precisely this welfare state with broad health care in Switzerland and Germany that has ensured that there is no mass unemployment or mass death these days as there is in the USA or England. Furthermore, if you go back only 12 years, you can see that in 2008/2009 it was the welfare state that enabled us to overcome the crisis that the “entrepreneurs” in the banks brought us. The state has saved what the economy and its entrepreneurs themselves could not have done. And what it means to put a “misguided health policy” on the right course, namely, to expose it to a policy of strict austerity, can be seen in best illustration in Italy, the US and England. Together with the accusation that governments have failed to answer the question of “how much social and economic damage they are willing to accept in order to save lives”, this reveals an incomprehensible cynicism that lacks not only intellectual but also ethical integrity.

The article initially comes across quite harmless. The expressed criticism of the measures taken by the Swiss government is in part quite justified indeed – from today’s perspective! Since scientists still know far from everything about the Covid-19 virus, any political decision rests on a risk assessment. It is thus part of the nature of such weighing up of risks that, in retrospect, with better knowledge, one or the other decision turns out to be not entirely optimal. In retrospect, one knows much better. And Mr. Janssen also knows a lot better when he expresses two months later that we should have stopped the flights to China or closed the borders to Italy a few days earlier.

It is becoming increasingly clear: While in the beautifully ultraliberal USA and the birthplace of liberalism, England, the new case numbers and death figures have been stagnating at an alarmingly high level for more than six weeks, Europe, and here especially Switzerland and Germany, seems to have come through the worst of the crisis significantly less harmed. Anyone who accuses those in power too harshly overlooks the fact that it was the very measures taken by the much-criticized Swiss and German governments that have proved to be particularly successful by international comparison.

But Mr. Janssen does not stop at this cheap criticism of the Swiss government. His real goal is to unpack the ideological club: It is not “Marx and Lenin, whose understanding of the state is based on robbery, oppression and murder” who should show us the “long way back to a free market economy and liberal future”, but “Hayek, Mises, Popper, Rand and Röpke”. Apart from the fact that Marx’s understanding of the state was certainly not based on robbery and murder – Mr. Janssen, such a clumsy polemic is not worthy of you, one should take a closer look at the “philosophers and economists who sketched out the successful organization of a society”, as the text says. Here too, the statements made prove to be imprecise, inconsistent, if not partly simply wrong.

Karl Popper may have been an anti-Marxist (as well as an anti-Platonist and anti-conventionalist), but he was also more of a philosopher than an economist (despite being a friend and colleague of Friedrich Hayes at the London School of Economics). Claiming Popper to be an unanimous advocate of the ideal of “people moving in markets that are as free as possible” is not correct. In his (political-philosophical) main work “The Open Society and Its Enemies” he explicitly calls the free market a “paradox” and admonishes suitable social structures in an open society (so that today many social democrats refer to him). Ludwig von Mises, in turn, wanted to establish economic laws a priori by purely deductive conclusions and without empirical observation, following the philosophical tradition of Immanuel Kant. By invoking this method, he considered capitalism to be a guarantor of human freedom and the only functioning economic system. But Kant was a philosopher and not an economist. And what works in philosophy does not automatically work in the economy. Almost all contemporary economists, including his student Friedrich Hayek, therefore rejected the orthodoxy of such an apriorism (which, incidentally, was also contrary to Karl Popper’s understanding of critical rationalism). And it gets worse. About fascism von Mises wrote: “It cannot be denied that fascism and all similar dictatorship efforts are full of the best intentions and that their intervention has saved European morality for the moment. The merit that fascism has acquired in this way will live on in history forever”. From which litter box Mr. Janssen took Ludwig von Mises, remains his secret.

At least equally to blame is the attempt to call the actress, author, and self-proclaimed philosopher Ayn Rand into the witness stand of economics. Her philosophy of “objectivism” was largely ignored in the academic mainstream and where it was perceived, it was generally rejected: Too naïve, ideologically unreflected and a step backwards into pre-Kantian philosophy in terms of both, her epistemological and ontological  view of a reality as completely independent of perception as well as her ethics according to which the real moral goal of life is the pursuit of one’s own happiness. In academic economics, on the other hand, her thesis had correspondingly little influence. Nevertheless, she became a heroine of the American neo-conservative right with her view that the only social system compatible with morality is laissez-faire capitalism. Thus, she is known more as the ideological pioneer of libertarianism than as a serious economist. It is rather insightful into his motives rather than supportive to the strength of his case that Janssen mentions her so prominently here.

Wilhelm Röpke, for his part, was an intellectual father of the social market economy, who saw it as the task of the government to protect the weak “beyond the market forces”, to balance interests, to set rules of the game and to limit economic and political power. For him there exists a “third way” between capitalism and socialism, an economic order which Röpke also regarded as “economic humanism”. This stands in strong contrast to the neo-Darwinian thinking of Ayn Rand. Janssen thus lacks consistency in his enumeration. He should therefore be little surprised by the readers’ impression that he seems more concerned about “name dropping” than strong arguments.

But let us take a look at the state of the economic sciences, of which Mr. Janssen is a representative. The fact that the neo-liberal ideal hardly corresponds to real market economy conditions has long been known in this field. Five forces essentially prevent the “market economy balance” propagated by libertarian economists from being a socially acceptable state of affairs.

• Costs are externalized: The economic activities of one person or a group of persons can affect other (possibly even all other) people without the acting person bearing the full costs. Polluting the environment costs little or nothing today. The climate-damaging emission of CO2 is still not associated with major costs for producers; the safety risk of nuclear power or natural gas fracking is also largely borne by the broad public. Another example is the activities of the banks before 2008, which took massive risks (and for a long time also generated corresponding returns), but which ultimately socialized the risks.
• Rent Seeking: Often powerful groups succeed in shaping political and economic rules solely for their own benefit without increasing the overall prosperity of society. One example is companies that obtain subsidies, grants, or customs protection, which in many countries is also associated with political corruption. But lobbying is also an industry in its own right employing tens of thousands in Berlin, Brussels or Washington.
• Unequal allocation of production goods: Production goods can be accumulated in the hands of a few – this insight is a core element of Marxist economic theory. The consequences are extreme differences in income and wealth within a society and, most recently, less economic competition.
• Information asymmetries: As early as 1970, the later Nobel Prize winner (2001) Georg Akerlof showed in his essay “The Market for Lemons” that free markets cannot function optimally if buyers and sellers do not have equal access to information. In many markets of our everyday life, however, there is an asymmetry of information.
• Cognitive distortions: Classical economic theory assumes that we know what is good for us and always act rationally accordingly. However, behavioral economics has shown that we act far less thoughtfully and rationally than free market advocates assume. We often let ourselves be guided by short-term drives rather than by long-term, well-considered considerations. Apple earns billions by releasing a new iPhone every six months and benefits from the fact that we like to be seduced by the latest technology gadgets, greatly overestimating their usefulness compared to their price.

With these five forces the free market behaves anything but optimal and overall welfare-optimizing. It is about time that we finally put to rest this neoclassical orthodoxy. The Corona crisis gives us yet another opportunity to do so. And if we want to bring in an economist whose teaching is of particular importance these weeks, it would surely be John Maynard Keynes.