The Social Insurance State is the Administrative State

At Bleeding Heart Libertarians, Jason Brennan takes up the question of which country is most libertarian and lodges a complaint against global “economic freedom” indices:

This index may understate how anti-libertarian the United States is. After all, the index penalizes countries if their governments spend large amounts on social insurance. Yet classical liberals and neoclassical liberals are not in principle opposed to government social insurance. [That is, they will accept it under certain conditions.]

Thus, suppose we separate the idea of the administrative state—which tries to control, regulate, manipulate, and manage the economy—from the social insurance state—which provides tax-financed education, healthcare, or unemployment insurance. On the Index of Economic Freedom, many countries that rank lower than the US have far less extensive administrative states than the US. For instance, Denmark ranks much higher than the United States on property rights, freedom from corruption, business freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Luxembourg, the Netherlands, the United Kingdom, and many other countries beat the US on these measures as well. Thus, many other European countries might reasonably be considered more economically libertarian than the US.

Jason makes a legitimate point here: a dollar transferred to a social security recipient is less violative of freedom than a dollar spent hiring a drug enforcement agent or antitrust litigator. This is so even for those declassé Rothbardian absolutists, for whom the immorality of taxation is compounded when it is used to fund further violations of people’s rights.

However, even a bleeding-heart libertarian should see really existing welfare states as problematic for two basic reasons. First, the overwhelming majority of social benefits in all Western democracies go to the non-poor. In the U.S., Social Security and Medicare dwarf Medicaid and other antipoverty programs. Second, even the antipoverty programs are paternalistic: public health insurance, food stamps, and housing vouchers are favored over unconditional cash grants. My sense is that libertarians of all flavors should be uncomfortable with these two aspects of modern welfare states.

If the point is that government expenditure on social insurance should “count for less” than government consumption (expenditure on the wage bill and goods for the government’s own use) and regulatory distortions in economic freedom indices, then I agree — but so do the authors of the economic freedom indices. In the Heritage/WSJ index, total government spending and taxation together account for just 20% of the score. In the Fraser index, government spending, taxation, and enterprises together account for, again, 20% of the score.

No doubt the U.S. is less economically free than some other countries, but I see no reason why the existing measures would get its relative place wildly wrong. Now, a more serious concern is that these indices ignore personal freedom. It’s hard to see how the country with the most prisoners per capita in the world could place anywhere near the top of any global ranking of countries on freedom tout court.

6 thoughts on “The Social Insurance State is the Administrative State

  1. Your overall point is correct. The BHL post continues to raise the question of where the libertarianism in BH libertarianism is.

    But I have to disagree with your last point – in theory. In practice, you are right since so many of those in prison are there for engaging in consensual practices (drug war “crimes”). However, in theory, if prisoners are in jail because of crimes against persons or property, then that is not liberty-reducing but actually liberty-enhancing (assuming that the prison sentence is appropriate for the crime).

    1. Yep, fair enough. But it’s hard to believe that the U.S. would be so much of an outlier in the tendency of its residents to violence as to justify its outlier status on incarceration policies.

  2. I appreciate your broad point. In addition to the conceptual issues you explore, there are also more technical issues with the measures. Building on work in the Physical Sciences, Georg Rasch posited a theory of a good measure that has had success in a wide variety of disciplines, and is more interpretable, in my view, than raw score, Classical Test Theory or Item Respose Theory approaches. In part, it is because Rasch’s approach allows the freedom “items” and countries, or any other factor to be on the same latent liberty “thermometer” as each other, if they meet Rasch’s quality standards. Linacre has a very sophisticated version of Rasch’s original 1960 approach that further allows for adjustments to individuals rating factors like liberty, to remove various biases (e.g. severity/leniency).

    Bond, T.G. & Fox, C.M. (2007). Applying the Rasch Model: Fundamental measurement in the human sciences. 2nd Edition. Lawrence Erlbaum.

    Linacre, J.M. (1994/1989). Many Facet Rasch Measurement. Institute for Objective Measurement.

    Rasch, G. (1960/1980). Probabilistic models for some intelligence and attainment tests. (Copenhagen, Danish Institute for Educational Research), expanded edition (1980) with foreword and afterword by B.D. Wright. Chicago: The University of Chicago Press.

    1. As a coauthor of a similar index for the American states, I will have to look more into this. I come from a discipline where IRT and similar methods are not common. The approach we take in Freedom in the 50 States is more like factor analysis, but with normative judgments about directionality and weight of the variables.

      1. I don’t think you’ll be dissapointed. Psychometricians have abandoned Factor Analysis and Classical Test Theory (Chronbach’s Alpha) about 30 years ago in favor of Rasch and IRT. Rasch requires smaller sample sizes than IRT, so for a 50 state sample, IRT may not be practical. Bond & Fox is a great place to start

  3. I didn’t read Brennan as strongly criticising the indices. His only negative comment about them was “This index may understate how anti-libertarian the United States is.” — and this is was mostly aimed at the United States, not the indices. Read this way, I don’t think you and he (or I) have much to disagree about.

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