No need to go to extremes.

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Updating Libertarianism for the 21st Century

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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A little while ago, I wrote that libertarianism -- the small-government philosophy codified by Robert Nozick and others in the mid-20th century -- is looking a little shopworn. As efforts to slash government yield diminishing returns, and empirical evidence piles up that many government interventions are very beneficial, the minimalist state envisioned by Nozick et al. doesn’t seem up to the challenges of the 21st century.

But it would be a mistake to throw libertarianism out the window -- as many of my left-leaning readers would have us do. The philosophy went too far, but along the way it taught us valuable lessons about the burdens of a heavy-handed state. Those are lessons we shouldn’t forget. The challenge for libertarians, therefore, is to find ways to update their doctrine to address today’s problems, while retaining and amplifying the useful parts.

Many libertarians are trying to do exactly this. The Niskanen Center, a new think tank, is working to steer the movement in a new direction. A brilliant new essay by the center’s vice president of policy, Will Wilkinson, demonstrates the type of thinking that will let libertarianism rebound from its 20th century overreach.

Instead of invoking airy axioms, Wilkinson begins with a hard-nosed look at the data. He confronts libertarians with a stark fact -- the richer a country is, the more its government tends to spend. This is true when we look at different countries, and also when we look at each country over time. Today, the top spenders include countries such as France, Denmark and Finland, while the small-government ranks include Sudan, Nigeria and Bangladesh. And here’s U.S. spending as a percentage of gross domestic product in the postwar era:

Rich Nation, Big Government
Federal spending as a percentage of U.S. gross domestic product
Source: Federal Reserve Bank of St. Louis

This could be because government spending is a luxury -- something poor countries want but can’t afford. Or it could mean that government is a parasite, which feeds more as its host gets fatter. Or it could even mean that more government spending causes countries to be richer.

Wilkinson chooses to remain agnostic. He says that whether government spending is a luxury good or a parasite, rich countries are almost never able to keep it low. Other than a few states like Singapore and Lichtenstein, every rich country chooses big government.

Faced with this fait accompli, Wilkinson says that libertarians need to adjust their goals in two ways. First, they need to think more about how to make government less wasteful:

You start to think differently about cutting wasteful spending, consolidating redundant programs, and making the delivery of government services more efficient when you stop seeing it all as part of some master plan to drown the government in a bathtub. You start to accept that spending cuts are ultimately more about optimizing the composition and effectiveness of spending than about the overall level of spending or its rate of growth.

This makes sense. If you know the government is going to spend a lot, and your goal is preventing government from wasting money, the best approach is to make the government spend more wisely.

A second approach is to focus on boosting economic growth -- the more pie there is, the less it hurts to divide it up. That’s why Wilkinson suggests that libertarians should shift their focus from taxes, welfare and redistribution to regulation:

We should distinguish more clearly between the welfare state and the regulatory state, and… focus our energy on removing regulatory barriers to economic participation, innovation, and growth.

Wilkinson is right -- this is the approach libertarians, and conservatives more generally, should take. Regulation is hideously complex and multifaceted -- it requires a huge army of smart people to figure out which regulations are good and which are holding back the economy. In the past, champions of small government didn’t always make regulation their priority -- Jimmy Carter was probably a much of a deregulator than Ronald Reagan. This should change.

Wilkinson’s ideas have lessons for economists as well. A number of them have made libertarian ideas a guiding force in their research. But they should also be guided by pragmatism. Instead of spinning theories that extol the virtue of unfettered markets -- theories that by now, no one outside the profession actually believes -- they should be diving into the gritty details of the regulatory state, or gathering evidence on how best to curb government’s excesses.

Wilkinson and his fellow travelers at the Niskanen Center are not yet ascendant in the libertarian movement. But I hope they have a big influence. Every ideology has its purists and its modernizers, but I think it’s only when the modernizers win that the ideology stays relevant.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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