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Exploiting Crises to Expand Government and Curtail Civil and Economic Liberties:

In a recent post, co-blogger Eric Posner writes that:

The specter of fear is everywhere, not just on Wall Street. And the scale of the government's reaction is no less than what it was after 9/11—that is what probably scares ordinary people the most. Yet no one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets. No one who thinks that government would use fear to curtail civil liberties seems to think that government would use fear to curtail economic liberties. Why not?

Perhaps Eric means to say merely that very few people who criticized the Bush Administration's reaction to 9/11 are now concerned about the expansion of government power in the present economic crisis. But it isn't true that "no one" has. I myself have been critical of the Bush Administration's claims of virtually unlimited executive power in the aftermath of 9/11 (see, e.g., here). And I have also warned repeatedly that the present economic crisis presents dangerous opportunities for government power grabs that curtail economic liberties and benefit powerful interest groups at the expense of the general public (e.g. - here, here, and here). And my position is far from unique. Indeed, it is similar to that taken by most libertarian commentators. The median libertarian public intellectual is probably even more skeptical than I am about both post-9/11 security measures and the federal government's policies in the current crisis.

In both the 9/11 case and the present crisis, I don't think it is merely a case of government officials cynically manipulating fear to curtail freedom in ways they know to be unjustified. Rather, I think that they, like most of the rest of us, naturally believe that expanding their own power and influence is also in the public interest. Crisis situations give greater scope for this natural bias by inducing fear in the general public and diminishing skepticism about government power grabs. Therefore, crises often lead to enormous - in many cases excessive - expansions of government power. The risk is heightened by widespread political ignorance, which makes it difficult for the public to assess which "emergency" measures are genuinely necessary. See here for a discussion of how political ignorance helped pave the way for various harmful policies during the Great Depression.

Some emergency expansions of government power may be defensible. But healthy skepticism is warranted during both economic and national security crises. And not everyone has been remiss in applying it.

Ilya Somin:
Just testing to see if the comment feature is working, as I thought it might be broken.
10.13.2008 2:18am
corneille1640 (mail):

And the scale of the government's reaction is no less than what it was after 9/11—that is what probably scares ordinary people the most.

This statement seems to contradict Mr. Posner's later statement that "no one" fears this expansion of government power.
10.13.2008 8:13am
paul lukasiak (mail):
I would suggest that the fear that arose from 9/11 was irrational, while the fear arising from the financial crisis are completely justifiable.

Al Qaeda has never been an existetial threat to the nation or its people, and the appropriate response would have been relatively minor changes in US policy and budget priorities. At its heart, 9/11 was an isolated criminal act, and should have been treated as such -- and only a vanishingly small percentage of Americans actually felt the direct impact of the attacks.

On the other hand, the current crisis is based on the complete failure of markets to regulate themselves in accordance with "theory". The problem is systemic, not isolated, and its impact is being felt directly by most Americans.

Thus calls for "curtailment" of financial "freedoms" based on fear make perfect sense -- libertarians may not be happy about it, but the laissez faire capitalist philosophy that gave us this crisis is simply far too pernicious and dangerous to continue to dominate our lives.
10.13.2008 8:36am
Doc W (mail):

...the laissez faire capitalist philosophy that gave us this crisis is simply far too pernicious and dangerous to continue to dominate our lives.

That's got it exactly wrong, of course. Government intervention is mainly responsible for the problems, and more government intervention will only make them worse, especially in the long run. Indeed, we have here a perfect example of how government meddling in the market causes problems that are blamed on the market and used as excuses for more government intervention.

Whether (or to what extent) the dynamic in the economic cases is quite the same as in the "national security" ones is an interesting question. I think it's pretty similar and goes to the combination of ignorance, character issues, and political incentives of those who are attracted to, occupy, and survive in positions of political power.
10.13.2008 10:36am
David Warner:
Paul and Doc,

You're both right (on the current crisis - not the threat of Islamic terrorism, given nuclear proliferation). The government has a crucial role to play in the market at Roberts' umpire. When the umpire starts swinging for the fences, as Doc notes, or widens the strike zone for ideological reasons, as Paul notes, he can no longer carry out his true responsibility effectively.
10.13.2008 11:16am
MS (mail):

Yet no one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets




Jon Stewart has been making this comparison for weeks on the Daily Show, and if he says it, millions of americans belive it. Perhaps Eric means to say merely that very few intellectuals who criticized the Bush Administration's reaction to 9/11 are now concerned about the expansion of government power in the present economic crisis?
10.13.2008 11:29am
Gabriel McCall (mail):
On the other hand, the current crisis is based on the complete failure of markets to regulate themselves in accordance with "theory".

When the Michelson-Morley experiment indicated that there was no such thing as celestial aether, no one spoke of this result as being an "atmosphere failure": they concluded that the theory was wrong.

Only in Economics is it perceived as reasonable to place the blame on the market rather than on the theory, when the theory fails to explain what the market is doing.
10.13.2008 2:33pm
Malvolio:
Only in Economics is it perceived as reasonable to place the blame on the market rather than on the theory, when the theory fails to explain what the market is doing.
"Market Failure" -- when the market fails to compensate for a past government intervention, necessitating a future government intervention.
10.13.2008 3:15pm
Nebuchanezzar (mail):
On the other hand, the current crisis is based on the complete failure of markets to regulate themselves in accordance with "theory".

I had the impression that the current crisis *demonstrates* that markets regulate themselves in accordance with "theory" (though I must admit I don't understand why theory is in scare quotes).

In (relatively) free markets, if you make bad decisions like lending lots of money to poor people so they can invest/speculate in real estate, the market will eventually point out to you what a really bad idea that is. It will probably hurt when they point it out, but it will be bearable and ultimately that's the price you pay for being stupid. It's only in heavily regulated markets where economic signals are thoroughly silenced that the market has to make its power clear through the total collapse of government and the rule of law (see USSR, end of).

(Relatively) free markets aren't perfect and can't be given they're made up of human beings. But they will ultimately self-correct, if you let them. And if you don't (and we're not!) they'll self-correct anyway -- it will just take longer and hurt much, much more.
10.13.2008 4:13pm
FWB (mail):
The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgobllins, all of them imaginary. - HL Mencken
10.13.2008 5:26pm