By The Foundation for Economic Education. Originally published at ValueWalk.
It’s not that much fun to be a libertarian, at least if you work in public policy.
You spend your days hoping that “Public Choice” can be overcome, which means you’re laboring to fulfill Sisyphean tasks.
- Trying to convince politicians and bureaucrats to voluntary give up power and control over the economy. Good luck with that.
- Trying to convince voters that it’s not right to use government coercion to steal other people’s money. An increasingly hard task.
Needless to say, these are not easy tasks, which is why most of my time is spent playing defense. In other words, I’m trying to prevent government from getting even bigger.
But what if there was an opportunity to wipe the slate clean and start all over? Imagine a libertarian fantasy world, where proponents of freedom decide the proper size and scope of government?
The Free Republic of Liberland
Well, that fantasy world exists, sort of. It’s called Liberland, an island in the Danube River that isn’t claimed by either Serbia or Croatia. So a group of libertarians, led by Vít Jedli?ka, claimed the island and announced the creation of the Free Republic of Liberland.
That’s the good news. The bad news is that neither Serbia nor Croatia recognize Vit’s claim. Indeed, Croatian police arrest people who set foot on the island, which is rather strange since Croatia says the island isn’t Croatian territory (Wikipedia has the details on Liberland’s status).
Notwithstanding these obstacles, the Liberland community is relentlessly hopeful of a good outcome.
Indeed, they just held a conference to mark Liberland’s second anniversary.
And I was asked to speak about the ideal fiscal policy for this new country. Here’s my speech, which begins with a discussion of government as a “stationary bandit” and then explores some of the theoretical issues of setting up a freedom-oriented society.
Yes, I realize I’m talking about the theoretical nature of a theoretical state, but I very much enjoyed this opportunity to engage in a Walter Mitty-style dream about how Liberland might operate.
And I even had Liberland’s president as an assistant for my talk.
After spending the first part of my speech contemplating the theoretical nature of a Liberland government (or private governance), I spend the last part of the speech explaining that the public sector should be very small because there are very few genuine “public goods.”
I discussed the Rahn Curve and cited the data showing that the federal government was a very tiny burden for much of America’s history.
I also pointed out that the burden of government was similarly modest in other western nations during the 1800s and early 1900s, which was when those countries went from agricultural poverty to middle-class prosperity.
And I pointed out that taxation would be a trivial issue if Liberland came into existence and has a very small government.
DIY Free Governance
For those interested in the idea of new libertarian societies, there’s “seasteading:”
Seasteading, the concept of building freer societies upon unincorporated parts of the world’s oceans, is one of those so-crazy-it-just-might-work ideas within liberty/stateless circles. Long discussed, presented, talked about, mulled over, most cranks like myself mentally pocketed the idea years ago. Compelling enough, definitely, but it seemed wishful, immediately impractical.
…The concept of seasteading really begins in earnest with Patri Friedman, grandson of Nobel Laureate Milton Friedman. The third generation Friedman doesn’t shy away from his famous lineage, which also includes anarcho-capitalist philosopher father David Friedman. …Mr. Friedman vowed to take theory into practice. Real world. Right now. He, along with gadfly investor Peter Thiel, founded The Seasteading Institute. …The Seasteading Institute has inked a deal with French Polynesia for a trial city off their shores. It’s happening.”
And “special economic zones” are another example of libertarian-style governance:
…two kinds of special jurisdictions – private communities and “Special Economic Zones” – are quietly taking over functions and providing options that traditional polities cannot or will not. This gentle revolution has already brought comparative wealth and better living to millions of people… In a Special Economic Zone (SEZ), a government creates exceptions to its own rules – a select haven from the status quo that prevails elsewhere in the national territory. The goal, says the World Bank, is to create a “business environment that is intended to be more liberal from a policy perspective and more effective from an administrative perspective than that of the national territory.”
…The antecedents of modern SEZs date from 166 BCE, when Roman authorities made the island of Delos a free port, exempting traders from the usual taxes in order to stimulate local commerce. …The astonishing growth in SEZs qualifies as a revolution of sorts, but not the usual, political kind. Instead of being imposed by domestic or foreign enemies, this revolution has come from within, allowed or even encouraged by existing authorities.
And here’s a video about Liberland for those interested:
Sensible Expectations
Let’s close with some wonkiness by looking at some academic research about fiscal policy and the evolution of government.
We’ll start with some excerpts from Tanzi and Schuknecht’s analysis of Public Spending in the 20th Century:
Classical economists thought that the government’s role should be limited to national defense, police, and administration because government “cannot have any other rational function but the legitimate defense of individual rights” (Bastiat, 1944–5). …For classical economists, the government role should be small… The countries’ institutional frameworks, such as the U.S. Constitution, did not specify any other economic role for the state. Consequently, in the last century, public spending was minimal in a number of industrialized countries for which data for 1870 could be found…
In the United States, government expenditure was about 7 percent of GDP, and, in most newly industrialized European countries of the period, such as Germany, the United Kingdom, or the Netherlands, expenditure did not exceed 10 percent of GDP. A leading French economist of the time, Paul Leroy-Beaulieu (1888), addressing the question of the proper share of taxes in the economy, suggested that a share of 5–6 percent was moderate while a share beyond 12 percent had to be considered “exorbitant” and would damage the growth prospects of an economy.”
Hmmm, I though Bastiat was the only good French economist. But Monsieur Leroy-Beaulieu obviously is a very sensible person.
Now let’s look at historical estimates of tax revenue, as presented in a study from two academics published by the London School of Economics.
…it was states in Europe that were the first to permanently break cycles of gains and losses in centralized fiscal and coercive capacity and build towards the modern state system. …we divide the annual per capita central tax revenues in silver by the daily wages of unskilled workers in silver. …The daily wages of unskilled urban workers in grams of silver…are available annually for most polities and in the absence of reliable estimates for per
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