In his contribution to the recent Cato Unbound debate on Brian Doherty's essay on prospects for libertarianism, Tyler Cowen claims that the success of libertarian ideas leads to bigger government. He also contends that this proves that libertarians should largely abandon the effort to shrink the modern state and instead focus on other issues:

Libertarian ideas also have improved the quality of government. Few American politicians advocate central planning or an economy built around collective bargaining. Marxism has retreated in intellectual disgrace.

Those developments have brought us much greater wealth and much greater liberty, at least in the positive sense of greater life opportunities. They've also brought much bigger government. The more wealth we have, the more government we can afford. Furthermore, the better government operates, the more government people will demand. That is the fundamental paradox of libertarianism. Many initial victories bring later defeats.

I have enormous respect for Tyler and his scholarship, but in this case I think he's wrong. It is true that we can afford more government if we become wealthier. But more wealth also enables us to afford more of everything else. The extra increment of wealth will only be used to buy more government if people believe that to be a better use of the additional resources than other possible purchases. And of course the whole point of libertarianism is that purchasing more government is rarely, if ever, a good deal relative to the available alternatives. Moreover, if Tyler is correct that "the better government operates, the more government people will demand," then we should expect the growth of government to focus on those areas where libertarian reforms have made government operate better. Tyler himself lists several such fields, including monetary policy, policy towards the high tech sector, and a less perverse tax system. It is, striking, however, that most of the growth in government over the last 30 years has not occurred in these areas. It has instead focused on Social Security, medical care, agricultural subsidies, and other areas where libertarian ideas have had little or no impact on policy, and fairly crude "command and control" statism remains the name of the game.

Tyler next argues that, even though in his view (and mine) libertarians are right to believe that most of the post-New Deal regulatory/welfare state is a bad idea, they should largely stop fighting it because big government and growing wealth are a "package deal:"

The major libertarian response to modernity is simply to wish that the package deal we face isn't a package deal. But it is, and that is why libertarians are becoming intellectually less important compared to, say, the 1970s or 1980s. So much of libertarianism has become a series of complaints about voter ignorance, or against the motives of special interest groups. The complaints are largely true, but many of the battles are losing ones. No, we should not be extreme fatalists, but the welfare state is here to stay, whether we like it or not ....

Let's not fight the last battle or the last war. Let's not obsess over all the interventions represented by the New Deal, even though I would agree that most of those policies were bad ideas.

Tyler is probably right to suppose that we can't achieve a complete rollback of the post-New Deal state in the foreseeable future. It does not follow that it is impossible to make large cutbacks in the size of government that fall short of the libertarian ideal. There is no theoretical reason to believe that big government and modern prosperity are a "package deal" to such an extent that such cuts are impossible. Indeed, empirical evidence suggests the opposite. In just a few years, Ireland has gone from being a fairly typical big government European-style social democracy, to a set of policies that have allowed to almost catch up with the US in the Index of Economic Freedom (a measure that ranks overall degree to which a nation pursues free market as opposed to statist policies). New Zealand and Australia, which also pursued quite statist policies until recently, have actually surpassed the United States on the index, and Singapore has always ranked well ahead.

None of this proves that cutting the size of government is easy or that every country can imitate Ireland's success. But it does suggest that Tyler is wrong to suppose that big government and modernity are so closely intertwined that major cuts in government are impossible. At the very least, we need much stronger evidence to demonstrate the existence of Tyler's "package deal" than he has provided.

Tyler also contends that, instead of trying to cut government, libertarians should refocus on issues such as global warming, nuclear terrorism, and intellectual property. We should indeed give careful consideration to these issues. But it does not follow that that requires us to give up the fight against big government. To the contrary, if (as Tyler believes), we are right about the harmful effects of overgrown government, reducing its size is likely to improve our ability to deal with these newer dangers. To the extent that reducing inefficient or harmful government programs increases our wealth, that creates more resources that can be devoted to combatting the threats Tyler points to. Moreover, as I have argued on many occasions (e.g. - here), a smaller government will be easier for rationally ignorant voters to monitor, and thus more likely to perform well. Finally, as Bryan Caplan points out in his response to Tyler, the new issues themselves might well be better addressed (at least in part) through private sector rather than political initiatives.

Bottom line: Libertarians are unlikely to win a complete victory over the modern state. But that doesn't mean we shouldn't try for incremental movement in that direction. The impossibility of total victory doesn't mean that we should give up the fight. Partial success is a lot better than admitting defeat.

UPDATE: It is theoretically possible that we can cut government down to roughly the size that currently prevails in the US, Ireland, or New Zealand, but no further. If so, Tyler would be correct as to the prospects for libertarianism in the US, but wrong about the vast majority of the world. However, Tyler provides no reason to believe that the current size of government in these countries is indeed the smallest that is politically feasible. So even in the most free market nations in the developed world, we should not rule out the possibility of major cuts in the size of government.

Tyler Cowen's counsel of libertarian despair (discussed in my previous post), and other similar works by fearful libertarians (e.g. - this slightly less pessimistic contribution to the same symposium by Brink Lindsey) are, in my view heavily influenced by two important fallacies that lead many libertarians to be more pessimistic than is warranted.

I. The All or Nothing Fallacy.

One is the "all or nothing" fallacy, which leads many to conclude that because libertarians can't completely eliminate excessive government, that means that we can't achieve anything worthwhile by trying to cut it back incrementally. For example, as I argued in my previous post, Tyler provides good reasons for believing that complete victory is impossible, but almost no argument against the possibility of partial success. Of course, the inability to achieve complete success is not unique to libertarianism. Our liberal, conservative, and socialist rivals have the same problem. Liberals are far from achieving their goal of creating a European-size welfare state in the US, and have little prospect of succeeding in the near future; social conservatives are probably even farther away from fully imposing "traditional values" on society and that goal keeps on slipping even further away. Some liberals and conservatives have given up because of all or nothing thinking, but most recognize that partial success is still worth striving for. We should do likewise.

The all or nothing fallacy is not unique to libertarians. You see it also in the views of those 1960s radicals who believed that nothing short of complete social revolution was worth striving for. But for reasons that I can't fully explain, I think that libertarian activists are, on average, more susceptible to this error than liberals or conservatives.

II. Overstating the Importance of Recent Events.

The second fallacy is overstating the importance of the most recent events. Psychologists call this the "availability heuristic." We overvalue the significance of recent data because they tend to be uppermost in our minds and of course get more coverage in the media. Thus, many libertarians despair because Bush's "big government" conservatism has enlarged the state, while the Democrats have turned away from Bill Clinton's moderate, partly libertarian agenda. However, it is possible to point to equally bleak short periods in the past that were even worse, yet proved not to be a harbinger of the future. Between 1965 and 1975, for example, we saw 1) the rise of the Great Society, 2) government's mishandling of the Vietnam War, 3) Nixon's big government conservatism (even more thoroughgoing than Bush's, complete with price controls and a proposal for nationalized health care), 4) the growing popularity of socialist and communist ideology in much of the world, and 5) the beginning of the oil crisis, with its accompanying perverse government interventions. Yet libertarians would have been wrong to give up in 1975 merely because the most recent trends were against them. Indeed, the next twenty years saw substantial movement in a libertarian direction both in the US, and in many other parts of the world. And we would be equally wrong to give up because of today's less extreme adverse trends. Because of our successes in the 1980s and 90s, we - unlike the libertarians of 1975 - have grown used to the idea that we are destined to win, and thereby more likely to be deeply disappointed when we suffer setbacks. This reaction is understandable, but wrongheaded.

That is not to say that libertarianism does not face serious challenges or that libertarians haven't sometimes shot themselves in the foot, as with the waste of time and resources poured into the Libertarian Party. It does not even prove that we have not entered a period where the libertarian cause has, for some reason, become hopeless. However, we are not justified in despairing merely because we have failed to win a complete victory or because we have suffered several years of political setbacks. Those who counsel despair need much stronger evidence than that to prove their point.