Intro. [Recording date: May 20, 2025.]
Russ Roberts: It’s May 20th, 2025, and joining me today is economist Noah Smith, whose Substack, titled Noahpinion (N-O-A-H-P-I-N-I-O-N), comes highly recommended for its intriguing insights. This marks Noah’s fifth appearance on EconTalk; he was last with us in August 2024 to discuss the complexities of escaping poverty.
Today, we’re diving into Noah’s recent essay, “I owe the libertarians an apology,” which explores the unexpected consequences of political forces and serves as a reminder of the need for intellectual humility. I’m eager to engage with Noah on how simple economic principles can have profound implications, even when they risk oversimplification. Welcome back to EconTalk, Noah.
Noah Smith: Thank you for having me back.
Russ Roberts: Our acquaintance spans several years, primarily in the digital realm, with a few in-person meetings along the way. What stands out to me is your remarkable willingness to critique your own ideological allies while reflecting on your beliefs. Your latest essay exemplifies this quality, and I hold it in high regard. I hope our discussion won’t turn into a self-critique session, but rather an exploration of your intellectual journey and the insights you’ve gleaned, regardless of one’s political leanings.
Let’s begin with the opening of your essay. You have previously been critical of libertarianism. What led to that critique? Could you summarize your past concerns with libertarian thought?
Noah Smith: Certainly. My critiques stemmed from a few core beliefs. Firstly, my understanding of history reveals that there are malevolent forces at play, and we must be prepared to defend ourselves against them. While I cherish freedom as an intrinsic good, the question arises: How do we preserve that freedom, not just today but in the future? For instance, if a conqueror like Tamerlane were approaching, I would need the means to protect my liberty.
Most mainstream libertarian thinkers, including Robert Nozick and Milton Friedman, advocate for national defense. However, when it comes to public goods that enhance a nation’s prosperity and ability to defend itself, we may need to tolerate certain economic interventions. Think of industrial policy as a necessary measure to ensure we have the manufacturing capacity to respond effectively in times of war, as demonstrated during World War II.
During that conflict, we saw a remarkable pivot, where civilian industries shifted to produce military goods, enabling us to combat truly sinister forces. If maintaining an industrial base means embracing some level of industrial policy, then so be it, as totalitarian threats are always lurking.
In the 1990s and early 2000s, we were lulled into believing that historical threats had dissipated—a so-called “end of history” scenario where everyone would become peaceful capitalists. However, this optimism was misplaced. Engagement with China, for instance, was predicated on the belief that it would transform into a friendly democracy, a notion that has proven naïve. While trade with China may have been beneficial, the reality is that they are a significant global player with aggressive ambitions. Russia and Iran represent additional threats.
That was my first critique. My second revolves around the nature of power in society; state power is not the only form of influence. If the government withdraws its oversight, local bullies can still impose oppression. Historical examples include discriminatory practices in restaurants and neighborhoods before the Civil Rights Act, or religious organizations covering up abuses. Libertarianism often underestimates the necessity of a strong state to counteract these local power dynamics, akin to a protective parent intervening in sibling disputes.
Russ Roberts: Let’s unpack these two critiques before you share more. Starting with your first point, I recognize the presence of coercion. Personally, I identify as a classical liberal and acknowledge I’ve evolved in my thinking over the past two decades. While many serious economists who align with libertarianism concede that power exists outside the state, they often emphasize the importance of individual choice—the ability to opt-out of products or services, despite their market power.
There are indeed unpleasant realities in the short term; while state coercion can be severe—imprisonment, execution—market power and social pressures also exert influence. For example, despite concerns over Google’s dominance in search technology, the emergence of AI has introduced unexpected competition, diminishing what once seemed like an insurmountable market stronghold.
When AI technologies like ChatGPT emerged, there were fears that only a few players could dominate due to the capital required. Yet, now I have multiple AI tools at my disposal, indicating a shift in the competitive landscape. This raises the question: Do we see competition as a remedy for market power, or do we acknowledge that while it may eventually arrive, the interim can be fraught with challenges?
Now, regarding your point on industrial policy—it’s worth noting that the U.S. has historically acted as a bulwark against global tyranny. While it may not be the only nation concerned with such stability, there are tangible benefits that arise from a strong U.S. presence on the world stage. However, the notion that other nations can simply free ride on American military and technological advancements is indeed intriguing. Consider the case of Poland, which is ramping up its defense spending significantly in light of current geopolitical threats.
Noah Smith: Poland is acutely aware of the risks posed by Russia. They recognize that should Ukraine falter, they may be next. As a result, they are significantly increasing their defense budgets to ensure their security, illustrating the urgent need for self-defense in an imperfect world.
Russ Roberts: It’s a perfect world only if there were no bad actors. However, even nations like Poland can procure defense capabilities from reliable allies, raising the question of how much autonomy nations genuinely need in terms of industrial capacity versus relying on a protective superpower.
Israel’s situation is similar, historically depending on U.S. military technology. Given recent tensions, Israeli leaders have expressed a desire to reduce reliance on American support, illustrating the complexities involved in national security strategy.
Noah Smith: Indeed, Israel has heavily interfered in its economy to cultivate a self-sufficient defense industrial base.
Russ Roberts: However, this brings to light the potential for self-serving motivations behind such policies. For example, a policy in Israel that restricts egg imports to bolster chicken farmers near the Lebanese border is framed as a security measure, but it inadvertently raises costs for consumers. The irony is palpable—making eggs more expensive to encourage settlement in a dangerous area hardly seems like an effective strategy.
Noah Smith: That certainly exemplifies the bootlegger-and-Baptist dynamic.
Russ Roberts: Would you like to add anything further regarding libertarianism?
Noah Smith: No, those critiques encapsulate my main concerns. There’s also the standard welfare critique: in a completely free market, the indigent may suffer. Thus, there’s an argument for taxing the wealthy to support those in need, but this creates economic distortions, leading to a so-called “leaky bucket” effect that requires careful balancing.
Ultimately, no advanced economy manages to function without some form of support for the less fortunate. Historically, societies may choose different levels of welfare, but this fundamental truth remains. The push to eliminate welfare states is misguided; most people now accept that some form of welfare is necessary.
Russ Roberts: I’ve written extensively on the potential of private charity to address these issues, though it may not suffice. The complexity of the welfare state, particularly in the U.S., is fascinating, especially when considering simpler solutions like a negative income tax. It would be interesting to explore that in future discussions.
You’re correct that most societies utilize government mechanisms to ensure a safety net, although the height of that safety net varies. It’s also intriguing to observe the odd choices some societies make regarding welfare structure, which are often influenced by both inertia and unique political dynamics.
Noah Smith: Indeed, many people demand specific in-kind provisions from the government, such as healthcare. While not every affluent nation provides universal health insurance, a significant number do, revealing a public preference for such systems.
Kenneth Arrow, a prominent economist, emphasized that societal norms play a crucial role in shaping healthcare expectations. The desire for government involvement in healthcare is palpable in many affluent nations.
Russ Roberts: This topic is vast, and having experienced healthcare systems in both Israel and the UK, I find the Israeli system considerably more effective. This highlights that while government involvement in healthcare varies, the execution of such involvement can dramatically affect outcomes.
Russ Roberts: Let’s pivot to your article, where you express a newfound perspective on libertarianism. What events or shifts prompted this reassessment of your critique? I suspect you haven’t abandoned your critique but have merely recognized something you previously overlooked. What is that insight?
Noah Smith: Exactly. My critiques held merit, but in my focus on criticizing libertarianism, I overlooked the positive contributions it has made to our society, which I failed to recognize. I was too focused on marginal changes, analyzing whether our society should shift slightly towards more or less libertarianism. What I neglected was the inframarginal impact—the broader, deeper effects of significant societal changes that I now see more clearly.
In my youth, I believed America was fundamentally sound, and I didn’t anticipate a desire for radical shifts in policy, such as those brought about by figures like Trump. I lacked the historical frame of reference to understand the potential for social and policy upheaval that we’ve witnessed.
Russ Roberts: Although I aimed to keep our discussion focused on policy, your comments invite a light-hearted jab at your choice of metaphor regarding Trump. But please, continue.
Noah Smith: My point about Trump’s policies is not personal; it’s about the unexpected shifts in public sentiment. I never imagined a significant portion of the populace would embrace such radical changes.
Russ Roberts: Indeed, the erosion of norms that have historically constrained political leaders is a significant concern. This trend appears to have accelerated under Trump, but it’s essential to recognize that this issue predates his presidency.
For instance, Thomas Friedman’s controversial suggestion that we could benefit from a day of authoritarian rule in a country like China underscores the precarious balance between expedience and democratic principles. While many past presidents have utilized executive orders, it’s crucial to differentiate between those who may have skirted constitutional protections and those who have acted out of sheer convenience.
Noah Smith: I agree that executive orders have become more prevalent, but they were used with less frequency in recent administrations compared to past ones.
Russ Roberts: My point is not to evaluate who has been better or worse but to highlight the troubling trend of bypassing established democratic norms for expediency.
Russ Roberts: It’s intriguing to consider how Trump functions as both a cause and an effect. You noted your surprise at the popularity of his approach, but that didn’t emerge in a vacuum. The political landscape has shifted dramatically, with parties adopting stances that were once the domain of their opponents.
This transformation reflects a broader trend where political actors, much like businesses, exploit opportunities in the political marketplace. It’s a fascinating dynamic, often articulated through the question: “And then what?”
Political discourse has shifted from economic policy to identity and belonging, leaving traditional economic discussions feeling irrelevant by comparison. Advocates for market-oriented policies now struggle to gain traction as identity politics take center stage.
Noah Smith: Yes, I believe you’re spot on. Issues of identity have emerged as crucial for people, and libertarian philosophy lacks a framework to address them adequately.
Russ Roberts: Libertarians often overlook the deep connections people have to their identities and communities. This has significant implications for political dynamics, evidenced by recent shifts in the U.S., U.K., and elsewhere.
Ultimately, the current rightward shift in many nations, while often framed as a response to economic policy, is largely centered around identity and cultural narratives.
Noah Smith: Indeed, while the Right’s approach to identity may be flawed, the Left’s handling of these issues is not without its faults either.
That leads me to a question for you.
Russ Roberts: Go ahead!
Noah Smith: Among all American leaders in history, who do you believe had the most effective approach to shaping American identity?
Russ Roberts: That’s a challenging question, considering my expertise lies elsewhere. However, I believe that historically, there was a consensus narrative that was easier to rally around, particularly among the political elite. As more diverse voices gained representation, the narrative became more complex and challenging to navigate.
America has an impressive history, but it is also riddled with flaws—its treatment of Native Americans and people of color, to name a few. The idealism of the American narrative has been deeply scrutinized, particularly as it struggles to accommodate a more diverse society.
Different leaders have attempted to define this narrative, but in today’s context, it seems increasingly fragmented and unsatisfactory for many.
This fragmentation also explains why libertarian economic principles are struggling to find their footing amid these identity-driven discussions.
Noah Smith: I would argue that Franklin Delano Roosevelt had a significant impact on American identity. His rhetoric fostered a sense of unity, despite the contradictions in his administration’s actions, such as the internment of Japanese Americans during World War II.
Russ Roberts: Indeed, leaders like FDR and Reagan were able to unify the country during times of crisis, but their approaches also came with complexities and compromises. They navigated significant challenges, shaping the narratives that resonated during their respective eras.
In times of upheaval, external threats often create a backdrop that enhances a leader’s ability to forge a cohesive identity, leading to broader consensus.
Noah Smith: That’s a compelling point. However, I believe exceptional leadership is crucial. Figures like Washington, Lincoln, FDR, and Reagan had the opportunity to shape America’s trajectory during pivotal moments, but their choices weren’t without flaws.
While they made significant contributions, they also faced backlash for their decisions, illustrating the complexity of leadership in defining national identity.
