The Problem of "Externalities" Caused by Government Financing:

One of Michael Kinsley's criticisms of libertarianism is based on "externalities" caused by government financing. He argues that people should not be allowed to drive without wearing seatbelts because their risky behavior creates an "externality" - a cost that they don't bear themselves. The externality in question is the fact that government may end up financing their medical treatment.

These kinds of "government financing exernalities" are commonly used to justify government regulations that restrict individual freedom. Liberals use these arguments to justify such regulations as mandatory seat belt laws, smoking bans (because government may end up subsidizing smokers' medical treatment if they get lung cancer), and most recently restrictions on morgage terms (because the government may bail out people who end up defaulting). Conservatives have their own favorite government financing externality arguments. For example, many argue that we should restrict immigration because otherwise the immigrants might collect welfare benefits that are paid for by taxpayers. Obviously, the greater the role of government in financing a wide range of activities, the greater the number of potential government financing externalities. The expansion of government spending facilitates the expansion of government regulation intended to curb the negative effects of the spending.

Government financing externality arguments generate their appeal from the fact that they seem not to be paternalistic. We are willing to let you hurt yourself, advocates implicitly suggest, but we can't let your bad behavior hurt the taxpayers.

The libertarian solution to this problem is to eliminate the government financing that created the "externality" in the first place. If you are worried about taxpayers having to pay for smokers' medical expenses, then argue for the elimination of government subsidies for the treatment of illnesses caused by smoking. Ditto for injuries caused by not wearing a seatbelt. The 1996 welfare reform law already eliminated even legal immigrants' eligibility for most welfare state benefits. But if you think there are still problems in this area, then argue for further reductions. Most immigrants would be more than happy to accept a deal under which they are allowed to stay in the US legally only on condition that they forego welfare state benefits.

In some cases, eliminating the government financing externality by eliminating government financing may be impossible for political or technical reasons. In such situations, there really is a difficult tradeoff between individual freedom and taxpayer interests. However, if government financing externalities are your true reasons for favoring any given type of regulation, you should at least consider the possibility of getting rid of the externality without restricting freedom.

Related Posts (on one page):

  1. The Problem of "Externalities" Caused by Government Financing:
  2. Michael Kinsley on Libertarianism:
  3. Kinsley on Libertarianism: