For libertarians, the state is the enemy. We are opposed to government from a philosophical as well as a utilitarian angle, believing that voluntary interactions between free men lead to the fairest and best economic outcomes. So we criticise government whenever they take action in the direction of increased state involvement in the economy and people’s lives and applaud them when (much more rarely, unfortunately) they go in the other direction.
But do libertarians think the government is the source of every problem and that the solution to any problem is ALWAYS to cut government involvement? To many this sounds ridiculous: how can government be wrong EVERY TIME they do something? Are libertarians, then, just ideological purists, opposed to government from a theoretical angle and incapable of distinguishing between those cases where government harms the markets we believe in and those where the actions of the state are actually the interest of individuals or society as a whole?
The immediate answer is that we do have an ideological opposition to government. We believe in property rights and individual freedom as sacrosanct rights, and that most, if not all, what the government does violates those rights with respect to at least some of their citizens. “Taxation is theft” we claim, because being a government does not make morally sound actions which for individuals are immoral. But we have more than a philosophical disagreement with the principle of government. For libertarians, government action is unnecessary at best, damaging at worst.
First it should be noted that we, of course, do not believe government is to blame for every problem. Our ideology does not require man to be a homo economicus, a perfectly rational individual (in the sense of mainstream economics) who pursues his goals in an always optimal way. We understand that people make mistakes, in fact, as Joseph Shumpeter identified with his term “creative destruction”, the capitalist economy is fundamentally characterised by economic change and the destruction of inefficient and outdated processes. Making and correcting mistakes is part of the process by which the economy grows.
From a utilitarian standpoint, we believe that when government intervenes in markets, they distort and lead to sub-optimal allocation of resources. If government operates in accordance with market forces, then we do not have any issue with government as an economic actor – provided that they have not funded their activities by way of taxation. But of course, that describes a private company and not a government. The whole raison d’etre for government is to act where there is a perceived “market failure” – an inefficiency in allocation of resources or a case of individuals or groups not acting irrationally – or to re-allocate resources to serve some purpose of social design, most often to re-distribute wealth among its citizenry.
But people are no more prone to irrational behaviour the government, so having government making decisions for us is not appealing. And more importantly, we don’t want the government regulating our behaviour in our interest – because they are unable to do so. A lot of regulation is based around what economist call “nudging” – positive reinforcement and indirect suggestions as a means of influencing behaviour – but as Austrian economist Per Bylund puts it
People value different things in different situations and at different times. As such, they tend to pick whichever choice will be most beneficial to them at any given moment. They might change their minds, but nudging them one way or the other means only that you place a cost on — or take away — their preferred option.
Austrian economics does not analyse why people make decisions; for us people have goals which they act to pursue, and whether they are rational (in the strict economic sense of the word) is not for an outsider to judge. Government can only act to impair our actions, never to improve them.
Of course, what people are looking for from government is often simply to improve their lot in comparison with what they could achieve in a free market. Businesses and people seek special favours from government; cronyism is an ever-present temptation which comes with endowing government with coercive power to change market outcomes.
The role of government is, simply put, to act in violation of the fundamental rights and economic principles that libertarians believe in. And with good reason, of course, as indeed there would be no need for government to provide any services or enforce any laws which respect private property and individual rights, and are conducted in accordance with market forces. A government, by its very nature, obtains its means of doing anything at all by coercion and expropriation of private property, it is the fundamental difference between private business and government that a private business must enter into voluntary, and therefor mutually beneficiary, transactions with its customers, whereas government does not live with the same constraint.
Minarchist libertarians believe in a government which provides basic “night watchman state” services, but any state, no matter how small, violates basic libertarian principles – and anarchists recognise that endowing the government with coercive powers always leads to an extension of those powers which spreads like an avalanche into every sphere of the citizens’ private and professional lives. So, the answer is yes. The government is always wrong when they involve themselves in people’s lives and the free markets which we rely on to provide us with goods and services. Government power is not only immoral, it is incapable of improving economic decisions.