I would like to use our model, a principal-agent framework for ideology (PAFI), to show how it handles a libertarian debate that has been swirling in the last week. Tyler Cowen, a professor of economics at George Mason University, has discovered that libertarianism does not adequately handle climate change. Presumably, he thinks climate change is due to excess CO2 emissions -- pollution, if you'll have it -- from various human activities. Back in the day, pollution was treated as an externality, to be handled by the government because individuals lacked the incentive to address the issue, hence 'externality'. Today, this newly novel problem requires a new approach: 'State Capacity Libertarianism', or as Henry Olson of the Washington Post might put it, conservatism.
Olson writes:
Conservatism and libertarianism have long been locked in a symbiotic embrace. [The State Capacity Libertarianism] essay by libertarian leaning economist Tyler Cowen suggests the embrace will end soon. [The issue with] libertarianism is that people do think public entities should address public problems. Old style, "big L" libertarianism rejects this view, contending that any form of government action is inherently unjust and creates more problems than it solves... Encumbered by the belief that [libertarians] must be kowtowed to, most Republican office holders remain unable to voice any significant alternative to progressive visions for health care policy [or] climate change... That requires saying that government can do some good, [even though] those who do speak are uniformly -- and often stupidly -- castigated as 'statists' or even 'fascists'. If even [Cowen] thinks government can and should act to solve problems, then advocates of [a libertarian] view have to stand up and pay attention. That, in turn, lends intellectual respectability to conservatives...who are slowly breaking the ice that has frozen conservative thinking for so long. The hard core [libertarians] will try to keep the rest of us in the shadows, but...more and more conservatives...will break free from their frozen slumber.
In other words, libertarians and conservatives are increasingly on opposite sides of the political divide. In Hungary, where I developed PAFI, this split occurred in the early 1990s, not long after the fall of communism. The anti-communist coalition of the conservative Hungarian Democratic Forum (MDF) and free-market Alliance of Free Democrats (SZDSZ) splintered soon after Hungary returned to democracy. The fiscally conservative SZDSZ — rather shockingly at the time — chose to cohabit on the left with their former oppressors, the Socialists.
In important ways, this split also happened in the US and UK with the Clinton and Blair governments, to be temporarily reversed during the Great Recession (which we refer to as the China Depression).
So let's take a look at State Capacity Libertarianism using PAFI.
Note that we define 'conservative' for the first time. The term has historically drawn a number of descriptors like 'traditional', 'backward looking', 'resistant to change' and 'illiberal'. All these are true, but none of them is a definition. We define conservatism as pertaining to the group; seeking to maximize the utility of the group (and its members); and with property rights vested in the group, not the individual. By contrast, liberalism is defined as pertaining to the individual, maximizing the individual's utility, and with property rights (freedom) vested in the individual. That's the organic left-right split: the individual versus the group; desire versus duty.
As the chart suggests, the fiscal conservatives -- more or less classical liberals or libertarians -- are structurally on the left, not the right. Notwithstanding, if you speak to the professionals at CATO or the Niskanen Center, for example, they think of themselves as center right. Nevertheless, if you ask them whether they speak to social conservatives, they do not. They are not on the same team. Emotionally, they have already gone through the divorce that Olson says is only coming now. Cowen is trying bridge the divide by putting libertarians on the center right with State Capacity Libertarianism, in essence because he has no working definition of the term 'conservative'. Consequently, Cowen trying to incorporate conservative ideas into libertarianism. The chart above suggests this will prove a dead end.
Liberals and conservatives will be structurally at odds with each other. Both libertarians and egalitarians (progressives) represent the individual against the system, against power and against the patriarchy. To concede the primacy of the individual is to concede a critical issue of principle, for the individual will always be in a weak position against the establishment. Libertarianism must stay distinct and uncompromised. CATO in particular has a very clear philosophy well aligned with neoclassical economics.
On the other hand, theoretical conservatism has no champion at all, because, no coherent theory of conservatism — other than ours — has been proposed to date. Conservative theory in our framework is the mirror to that of CATO, with solid philosophical and theoretical foundations consistent with established economic theory.
Our theory asserts that libertarianism will find its home on the left. If the median voter boundary falls to the right of the classical liberals -- and it does -- then the classical liberals will dominate the left, because policy must be near the median voter boundary to pass into legislation. Thus, the fiscal conservatives will marginalize the egalitarians in the future just as they marginalized social conservatives during the Soviet era. There will be lots of talk of progressive policy, but the actions will look fiscally conservative, says the theory. We will see the return of Bill Clinton-style administration, perhaps in the form of Joe Biden, Amy Klobuchar, Michael Bloomberg or Pete Buttigieg. The model suggests that Elizabeth Warren and Bernie Sanders come up empty, because the balance of Democratic voters will increasingly be those suburban independents -- the fiscal conservatives -- whom Henry Olson and the Republican Party have been so assiduously purging. It is not time to cashier libertarianism, but to recognize that it must find a new home.
It is also time to put conservatism on a sound, theoretical basis. We have the theory. Where should it go? The Heritage Foundation could be a natural home, although Heritage is positioned perhaps more as a Republican shop than independent think tank. The Hoover Institution, arguably a more brainy place, could also be a good home. Be that as it may, our model suggests that the social conservatives are on the median voter boundary — there because communism collapsed. Consequently, conservatives could crowd the boundary for a very long time to come, literally centuries. Unlike liberalism, conservatism contains very serious risks for civil society domestically and for conflicts abroad. It is power over money, and power is more dangerous. As a result, we need to improve theory to ensure we draw the best from conservatism while avoiding its pitfalls. And Tyler Cowen is right about another thing: libertarianism for now is hollowed out. Twentieth century liberalism has run its course. For the next generation or two, the interesting running will be made on the conservative side. That's where the action will be.
To close with our opening point: A principal-agent framework for ideology is a very useful tool. I have relied on it for 15 years and use it almost every day. Our framework has both great explanatory and predictive power. The tool is not hard to learn or apply, and integrates well with both liberal theory and neoclassical economics. Many of the readers on our email list are academics, think tank professionals, brainy journalists or ideology junkies. All of you will find this framework helpful in better understanding the world and the possibilities for successful policy initiatives.
I am always happy to make a presentation on the topic.