Building off my earlier post, William D. Eggers & John O’Leary have a piece up at Reason’s Hit-n-Run Blog that really lays out where I think Libertarianism has been hurt by the type of arguments that they make:

1. Bad government leads to bigger, badder government. Today, only 23 percent of Americans trust government to do the right thing. At first blush, this would seem to be an encouraging statistic for those opposed to “big government.” After all, the less citizens trust government, the less willing they should be to give it big new responsibilities, right?

Wrong.

An important recent academic study called “Regulation and Distrust” shows that, paradoxically, the worse government performs, the more citizens demand greater government intervention. The authors’ explanation for this curious finding is that in societies where people distrust large institutions—whether government or big business—the demand for more regulation and for more government is higher, even when government is incompetent or downright corrupt.

2. To shrink government, you need to love government. Most liberals believe deeply in government. As a result, they sit on school boards, city councils, and regional planning boards. They become expert at navigating through the bureaucracy and know which bureaucratic levers to pull to make their policy vision reality.

Many conservatives and libertarians come from the world of business. They don’t particularly like government. They view it as merely a necessary evil. As a consequence, they rarely immerse themselves in the intricacies of governing, preferring to make their case from a safe distance.

Once in power, they tend to have far more difficulty navigating the complex terrain of the public sector. The result? From Ronald Reagan’s Grace Commission to the 1995 government shutdown by a GOP Congress, most high-profile attempts to shrink government fail.

Until small-government types better master the nuts and bolts of the public sector—how to design policies that work in the real world and how to execute on large public undertakings—their initiatives to downsize government will continue to disappoint.

3. Market-based reforms are not self-executing. Fans of limited government are quick to point out the shortcomings of “big government” policy initiatives. But market-oriented policy prescriptions will also fail if they aren’t well implemented.

The deregulation of the airline and trucking industries were two of the biggest and best things done by government in the 1970s. Well-designed and well-executed, they demonstrated the benefits of choice and competition. Consumers saved billions.

In the late 1990s, free-market think tanks were pushing the idea that competition could cut costs in the stodgy, monopolistic world of electricity. So what happened when California actually tried electricity deregulation?

Within just a few years, the new law caused soaring prices, rolling blackouts, and the recall of Gov. Gray Davis. Consumers lost billions.

What went wrong? The short answer is that energy companies such as Enron exploited design flaws in the legislation to game the system. Competition could work in electricity, but California’s poorly designed “deregulation” was a disaster.

Without a keen appreciation of the process by which legislation and programs are designed and implemented, efforts to move from monopoly to markets carry a high risk of failure.

4. Government bashing alienates those you want to reach. According to many libertarians, politicians are corrupt, bureaucrats are lazy, and public unions are a collection of thugs. The whole enterprise of government is a moral cesspool filled with Randian villains scheming to drain every bit of life, cash, and liberty from the noble John Galts of the free market.

This view is so at odds with the daily experience of millions of Americans that libertarians are easily dismissed by the average citizen. The distorted worldview in which government performs no useful functions—ever—is silly.

Incessant government-bashing may make you feel good, but alienates most everybody who knows and loves a police officer, firefighter, teacher, social worker, anyone who has ever collected an unemployment check, and anyone who saw NASA put a man on the moon.

In the short term, a philosophy of “government never works” might sell to the base but it’s not an effective strategy for building a broad-based electoral coalition or actually governing. Voters won’t trust people who hate government with the keys to City Hall.

5. Nobody will care what you know until they know you care. Many voters today may indeed want smaller government, but what they want most of all is competent government. In addition to pointing out the flaws of government, free-marketers also need to communicate a genuine interest in the effective performance of the important duties of government.

After all, what is it that gets you so worked up about the current state of affairs? It is the human potential squandered by a government that isn’t the best that it can be. The ultimate goal is the pursuit of happiness, and when a properly limited government does its job well, it fosters freedom, peace, and prosperity. That is a noble goal. Why not embrace it?

All these points have merit, and is a much better way of phrasing my own critique: libertarian minded people can’t let themselves be pigeon-holed as those who ‘hate taxes, but like pot’. A perfect example, since it is still mainly in the news, is healthcare reform.

Many libertarian minded people, specifically those whom gravitated to the Tea Party movement, argued that any reform was tantamount to socialist market control. Conveniently ignoring the fact that the government run healthcare options, Medicare, Medicaid, and the VA, represent the largest single healthcare insurer, as it stands today. First off, it looks like you don’t care, second it ignores the market reality, and third it’s nihilistic alternative would allow great harms (gov’t deficit, death, and bankruptcy) that they themselves raised, but offered no solution towards. Their argument runs mostly, the government programs created the healthcare inflation crisis, so there is no way they can fix it. Nothing they do can be good. Which may be true, but it also doesn’t fix the problem, or answer the question of: what do we do now/next? (that apparently doesn’t matter)

To be clear I am a policy libertarian. Meaning that I think government policy should based on data. Theory is where policy is born, but we promote and empower based on results that can be measured. I agree with Mao, all political power grows from the barrel of a gun, and all political pressure is at base coercion.

But we live in a society where the vast majority has agreed, by consent, to live within and abide by the social contract. Therefore, the government will always exist, and will always respond to the interest of the majority. Our job is to make the best decision as to which policy, such that it limits the amount of coercion, and empowers/benefits the most people. That is the most we can do, and thus is what we ought to do.

After the euphoria of the 2008 elections, Obama’s first year in office was going to feel like the end of a sugar-high no matter what he did or how well it was done. In the era of 20min news cycles a year can seem like an eternity, but in reality it’s a very short-time. Even so, after 12 months of hard slogging Obama’s promise seems quite dulled by political reality. All the while certain segments of American Society either believe the end of America is imminent, or are willing its end to be, if only to hang it on Obama’s (and the liburls) head.

The feeling now might be that Obama is down in the polls and the Dems are heading for a gutting in November. Part of this is simply the magnitude of problems faced upon entering office. But can anyone name one thing that Obama wanted that he didn’t get? (Maybe the public option, but he never fully committed to the idea publicly). A new Supreme Court Justice, a stimulus, and eventually (after 30 years and many months) a landmark healthcare reform; it hasn’t been easy, or neat, or clean, but ‘he will has been done’.

Though far from perfect and incomplete; 2009 seems to be a hugely successful year.

The Domestic Economy

The TARP, the auto-bailout, ‘stress-tests’, and the stimulus were all measures taken to stabilize an economy that was still mostly in a panicked freefall when Obama first entered office last January. That panic has now subsided, the market has rebounded.

This may seem like a small thing but it’s not; namely, because it ‘cost’ almost nothing. The TARP specifically has come back almost in full, with the exception of the money that went towards the Auto-bailout. These measures, combined with the stress test, did one thing: suture the large banks structural wounds.

It was in fact the Treasury and the Fed, under the TAF, that extended the real lifeline to unload trillions of dollars worth of mortgages, aka the transfusion. In a rough and ready sense, the Fed became the new Fannie and Freddie, buying up all of the mortgage securities off the bank’s balance sheets. This allowed them to fix their capital positions, but we have no idea what these MBS’s are worth, or what was paid for them, nor to whom. This is quite worrying, but the Fed’s intransience has been a problem for nearly 100 years now, and this is nothing new. (Though, in light of the unending revelations regarding AIG use of bailout money to pay off counter-parties at 100 cents on the dollar, this problem could come under a bright light very soon, see below.)

Yet, any fears that we ‘spent’ trillions of dollar is simplistic, we lent trillions of dollars, mostly to home owing American Residents. Worst case the Fed *could* hold the mortgages until maturity, and vast majority will pay-out.

Because of its balance sheet expansion, and its Zero-Interest-Rate-Policy (ZIRP) the Fed has also devalued the dollar relative to the rest of the world (save China). This has let housing get a floor under itself, and allowed for the first expansion of American Exports in nearly 20years. Some say that Fed actions have only served to re-inflate a real estate bubble that they largely created themselves. Perhaps true, but the immediate worry is the Fed’s ability to deal with yet ANOTHER crisis, if it doesn’t unload at least some of the assets it has taken onto its balance sheet, and interest rates still at zero, this is an acute worry.

In other words, the fire is out, but smoke and water damage remain and there is no more water in the tower, to fight another fire. This has not been dealt with at all. Many people, from Barry Ritholtz to the Cunning Realist have been livid with the Obama administration’s lack of cleanup in the financial sector. These are the ‘independents’ whom supported Obama last year, but where likely Regan-iets 20 years ago. This to me, is the issue where most of the independent support has left the great Hope-n-Changer, to disillusionment.

Healthcare

The reason why it has not been dealt with was twofold, first the economy is/was still fragile, and second health-reform was put upfront in year one, where it was deemed politically safer to make concessions to get a bill completed.

Healthcare was placed first because it, like the banks, was declared ‘too-big-to-fail’. It was a Dem goal since the 1970’s and was the main unifying feature of the Democratic Primary. It was the one thing all Democrats wanted. But as a result of healthcare being a ‘must-pass’ priority you also allow yourself to be extorted, and that has been the biggest failing of this whole process. Repeatedly, things have been removed (Medicare expansion, public option) or added (no abortion funding for anyone ever from any plan that receives any government money) that make the legislation better for ONE person, regardless of what the other supporters think. Thus, the least committed are the most influential.

Once the tea-party protests in August hit fevered pitch, it became impossible for any member of the GOP to vote in favor or help in anyway. Cutting themselves out has meant that NO GOP proposals entered the legislation. Tort reform, interstate competition, even expanding HAS’s were never mentioned. The GOP believes that this stance will pay dividends in the Congressional races later in 2010, perhaps it will; but it still seems like winning a battle but losing the war.

Healthcare reform will pass and entitlements have this funny habit gaining popularity, see Social Security and Medicare. Furthermore, the crux of the GOP argument has centered on the expense and the deficit. By all accounts, including the CBO, the bill reduces the deficit, and starts to ‘bend-the-cost-curve’. If EITHER happens, the Democratic Party can claim victory, and cast the GOP as a do-nothing party, that would allow us to slowly bleed to death, rather than take corrective action. (Framed as a policy doctor, this will be a damaging line of attack)

The GOP can only win the war, hold POTUS and a majority, if everything fails. But since this was a must win/will win for Democrats this isn’t going to happen. The bill will pass, Obama will sign it, and short of catastrophe will reduce the deficit and will reduce costs. This will be certifiable. The more you yell socialism the less impact it will have, especially in light of expanded coverage/reduced cost reality.

The 2010 Elections

Lastly, Obama decision to move healthcare first, and let financial reform wait until 2010 has a brilliant political strategy implication; true the economy was weak this past year, and yes healthcare reform was more politically fraught, but financial reform has a wonderful populist feel to it.

Healthcare had to be passed by Congress; it’s simply the name of the game, and rules we live by. But Obama runs the executive branch and all its departments. Many things can be changed by executive order and fiate through the SEC, the FTC, Treasury, FDIC, ect. Congress on the other hand gets to play the role of vender of constituent anger. A few round of banker-bashing and popular sentiment is apt to switch sides rather quickly. If the GOP joins in the bashing fine, but the Dems still control congress and will be running the show. If they don’t, and play defenders of the rich (or defenders of capitalism, or fighters of socialism) it would square nicely with a narrative of protecting corp interest, along with their obstinacy on healthcare reform.

In other words, the GOP will have to be onboard with the Dem financial reform agenda or risk a rift within the party between the Tea Party and the GOP faithful. (Which they may face anyway if they go along with the Democrats) The point is this: financial reform is Uber-popular and populist. By pushing it to 2010, Obama has given the Dem a rallying call to unite behind after the monumental effort it took for healthcare. But this particular call helps to not only gin-up the Dem base, but it places the GOP on tenuous footing. Go along and lose the Tea Party Base, or fight and most likely lose independents.

It’s a beautiful divide and conquer strategy.

Of course one should still account for the unknowns. Namely, that Obama has Ben up for reappointment to the Fed, and Tim Geithner was his first choice to head up Treasury. It the hearings start to tarnish those two and their major roles in putting out the fire, this could al backfire on the Dems and the Administration. Only time will tell.

Check, but not Mate

As the out party the GOP has made quite a stir in the media, and whipped their base into activity on par with what Obama was able to achieve in his campaign run. Yet, policy wise they have stopped, improved, and hindered nothing. Furthermore, by stoking the base as they have, base elements have come to personify the party in the public imagination. Old and white are the adjectives most likely to be used to describe the GOP. In 1980, that won the election, in 2009 your John McCain.

Based to pure political tectonics, the GOP will pickup seats in 2010. It will be a limited victory. But look to 2012 and the picture darkens again. The one true leader of the GOP, is giving the Keynote at the 1^st ever Tea Party Convention, which is looking more-and-more 3^rd party, everyday. Then you have Mittens, Huck, and Tim each of whom is untenable to at least one major GOP constituency. Suddenly, in a flash of neon colors it says 1992 all over again.