The Libertarian Position

The Libertarian Position, Libertarian Positions

It is absurd, of course, to talk about 'the' libertarian position, but there are sufficient common elements in libertarian writing for us to be able to construct a view about society's obligations which involve transfer of resources between individuals.

A useful starting point is Nozick's view on 'entitlement'. The only claim we have on resources is that based on our own efforts and abilities. Our entitlement is to be able to exert effort and to use our abilities in any way we choose provided this does not limit any other individual's entitlement to do the same. It follows that no one has a prior right to a particular standard of living, such as a minimum level of subsistence. This does not carry the implication that people will be left to starve, as it would be wholly consistent with a society in which people could use their own resources as they think fit, for a large proportion of them do, in fact, wish to see poverty eradicated. The motives, as always, may be mixed. Some may wish to see poverty eradicated because they would suffer from feelings of guilt and repugnance or because they are empathic; others may be worried about possible social unrest and attacks on their own perceived entitlements. In short, the relief of poverty would reflect some contractual relationship between members of the community and would not be legitimized by an appeal to some principle of distributive justice.

The translation of this philosophical position into the designing of institutions to give effect to any wish to relieve poverty seems to be regarded as a rather secondary matter by social philosophers; or perhaps they realize that the translation is far from easy. The only general guidance given is that one must minimize the intervention of the state as much as possible and, by implication, the degree of compulsory income distribution. All that an economist can do is to identify the kind of institutional arrangements which would appear to be compatible with the 'minimalist' position.

So far as the poverty line is concerned, it is doubtful if libertarians could accept the concept at all, for poverty is not capable of exact measurement. They are usually the first to complain about the false precision given to the term by poverty action groups. Nevertheless, there is a clear commitment in the libertarian literature to a community responsibility to prevent starvation, however caused. Thus Hayek, after referring to the brilliant success of the capitalist countries in creating the means to eradicate poverty, quotes with approval the words of the famous Poor Law Commissioner and economist, Nassau Senior:

to proclaim that no man, whatever his vices or even his crimes, shall die of hunger and cold, is a promise that in the state of civilisation of England, or of France, can be performed not merely with safety, but with advantage, because the gift of mere subsistence may be subjected to conditions which no one will voluntarily accept.

The commitment clearly only extends to the relief of absolute poverty. Hayek's view is probably representative of this position:

poverty in the relative sense must of course continue to exist outside of any completely egalitarian society; so long as there exists inequality, somebody must be at the bottom of the scale. But the abolition of absolute poverty is not helped by the endeavour to achieve 'social justice'; in fact, in many of the countries in which absolute poverty is still an acute problem, the concern for 'social justice' has become one of the greatest obstacles in the elimination of poverty. ...

Misfortune, however, cannot create a claim for protection against risks which all have had to run in order to attain the position they occupy. The very language in current use which at once labels as a 'social problem' anything which causes dissatisfaction of any group, and suggests that it is the duty of the legislature to do something about such 'social injustice', has turned the conception of 'social justice' into a mere pretext for claims for privileges by special interests.

In order to understand the libertarian attitude to universality versus selectivity of benefits, it is necessary to consider the 'minimalist' position about the responsibility of the individual to make provision for himself or herself against the possibility of becoming poor. The initial presumption is that individuals might be able to insure against various calamitous events or predictable conditions (e.g. old age) which would destroy or at least reduce their income earning power. If individuals cannot be relied upon voluntarily to take out such insurance this does not make a case for some compulsory state scheme, but it does suggest some form of government regulation which would make a minimum level of provision through private sector insurance compulsory. However, even assuming that such a regulation would be enforceable, this would not guarantee the eradication of absolute poverty. Firstly, it is quite probable that a fair proportion of insurees would have to pay annual premiums which would leave them with an annual disposable income below the poverty standard and there will be a residuum of persons who cannot provide for themselves anyway. (It is often claimed that poorer people are worse health risks than richer persons so that compulsory insurance premiums could be regressive.) Secondly, loss of earnings resulting from unemployment is uninsurable. (Now it is true that some form of insurance against temporary unemployment is provided indirectly through extension of credit under hire purchase agreements and temporary suspension of mortgage payments, but lenders will expect some form of security, e.g. other physical assets and investment in skills, which can only be supplied by the relatively well-off.) Unemployment is virtually uninsurable because of (i) the adverse selection problem - the insuree can control the incidence of unemployment; and (ii) the risks are not separate and independent -unemployment can hit a large number of persons at once.

The minimalist position, therefore, recognizes that inducing or compelling individuals by regulation to re-allocate their income through time would not eliminate poverty, and that some form of payment from public funds would be required - the form of which is yet to be discussed. Clearly, however, given the overriding requirement that compulsory redistribution of income must be minimized, such payment must be targeted to those who are not able to cover the risks of poverty for themselves and targeting must be related to the particular cause of poverty, such as sickness, old age, housing conditions or unemployment. The inevitable concomitant to targeted benefits must be means testing.

So far as the form of benefits is concerned, there must be a presumption that the libertarian position would entail a preference for money transfers. Individuals who receive some form of subsidized income would be paid in money in order to cover their minimum needs during periods of sickness, unemployment or old age. Such devices as food subsidies, and health provision at zero cost rather than by payment through compulsory health insurance, would be frowned upon, because these would interfere with market forces.6 It would also be emphasized by libertarians that transfers-in-kind would inhibit the preservation and development of basic household management skills which would enable poorer persons to make the most of scarce resources. At the very most, libertarians might tolerate the issue of vouchers designed to effect payments for particular services, particularly those which protect the interest of minors, such as housing and education. This would still enable a free market to operate in the provision of 'social services' through rent allowances, education vouchers and the like paid directly to recipients of income support and redeemable by private suppliers and targeted to the 'desired' components of a minimum standard of living.

There is, finally, the question of financing the various elements in the provision of income support. The principle in operation which complements the minimizing of compulsory transfers is that of relating benefit to cost so far as possible. Therefore, in an ideal libertarian world, individuals, as we have seen, insure against the incidence of poverty. Taking a longer view, the incidence of poverty might be reduced by investment in human capital, which suggests that somehow a market in educational and training investment should be created with the offer of loan finance. If the absolute minimum payments simply make it impossible for all individuals to pay the premiums or amortize the loans, then the next step would be to subsidize the premiums and loans on a means-tested basis. The important point to note is that while insurance would have to be compulsory, there is no argument deployed in support of a state monopoly in insurance provision. The one important exception would be unemployment, which cannot be insured against, though it is sometimes claimed that any state provision might be financed primarily from a payment by each industry in proportion to the incidence of unemployment 'generated' in it.

Controversy must obviously surround the feasibility of such a system of income and its very compatibility with other principles dear to the heart of minimalists. The onus of proof of entitlement to support would presumably rest with the individual or the head of the family, and it seems impossible to avoid major difficulties in deciding on levels of support and in carrying out detailed enquiries into means. This presents policy-makers with a dilemma. On the one hand, if information is to be supplied solely by those demanding support, claimants may exaggerate their needs - the adverse selection problem. On the other hand, obtaining accurate information might entail rigorous methods of enquiry and heavy penalties for non-compliance which might appear incompatible with a libertarian disposition.

There has been some recent discussion about the prospects for devising an administrative system which would enable a government to differentiate between 'self-provision' requirements and the residuum of financial support which would be targeted towards those who cannot meet the minimum standard of individual and family provision. One such scheme8 is derived from the principle of taxation according to benefit developed by Wicksell. Each individual is given a social security account by the public authorities. Premium payments are recorded on the credit side on evidence supplied by the individual, who may claim partial or complete exemption depending on evidence of means. Social security payments are recorded on the debit side, with some such payments (e.g. education vouchers, family allowances) also recorded as loans. A separate loan account records loans taken up and records interest and amortization payments. The account is normally 'closed' when the individual reaches pensionable age with provision made for 'early closing' in the event of death before retirement or emigration. Depending on the individual's circumstances, any deficit on the account may be written off, the resultant loss being covered by taxation. Of course, such a scheme does not rule out strategic behaviour by individuals, who may work less and save less, in contemplation of the likelihood that the government will always provide for them. However, if they have a deficit against their name, then they will have to pay up, though they would always be left with a subsistence level of pension.

This kind of scheme raises a basic question about the operation of any social security system, even if it is confined to minimum income support. Unless there is some compelling reason for operating a separate compulsory social insurance scheme run by the government, it would seem logical to integrate the social security account with the individual's 'account' with the tax authorities. Only then would it be possible to have full information on the impact of government transfers and taxes on the disposable income of the individual. Full consideration of proposals to amalgamate social security and income tax administration will be given when proposals for tax credit or negative income tax schemes are examined in Section III below.