Libertarians will argue over abortion and immigration, but there are general things we can agree on with these issues. At least some of the solutions can be found in decentralization and property rights.
With immigration, if you end government welfare – which all libertarians should agree – then it automatically solves a major portion of the immigration issue.
I don’t know if there is a lot of disagreement, but one of the toughest issues for libertarians is the banking system. We obviously share agreement that there should be a free market system, but how do we get there with our current system?
I know that most people opposed the bailouts in 2008. And it is ridiculous that these companies received bailouts only to see the executives later receiving big bonuses.
Obviously the car bailouts were a case of protectionism and corporatism. It’s not that the other bailouts weren’t, but just that they go deeper.
The public opposed the bailouts for the most part, but what if they had been given a choice between the bailouts and having the chance of losing deposits in their bank account?
The average American probably only has a few thousand dollars in a checking account, but it is still something. And there is a general respect for property rights when it comes to “cash” in the bank.
We can’t be sure if this would have happened, but if there had been no bailouts, there is a good chance that the big banks would have gone under. The FDIC was supposed to insure deposits up to $100,000 (now $250,000), but the FDIC barely has any money. If the FDIC had covered all of the failed banks, then the FDIC would have needed a major bailout, which could only be feasibly done by the Fed. Either way, it is a bailout.
In other words, unless you are prepared to say that the whole banking system should have been allowed to collapse, then the bailouts may have been necessary, at least to some extent.
The other option is that the government could have outright nationalized the major banks (or all banks), but what kind of libertarian would advocate that? Actually, there are a few libertarians out there who did understand the depth of the situation and advocated nationalization as the least bad of the all of the options.
I still do not know what the answer was, other than the fact that the people should have never allowed the government to get into the mess in the first place.
I know some libertarians would say to let the whole thing collapse. I myself say that with many issues. But the banking system is everything. Without a functioning banking system, all chaos really would break loose. It might mean a severe breakdown of the division of labor. Will the truckers deliver food to the stores if they can’t get paid?
In the U.S., there is basically no alternative money at this time. In some foreign countries, the U.S. dollar functions as a secondary currency. If the U.S. dollar broke down, something like gold would quickly replace it. But without any other money currently in use in any significant way, the transition would be tough and not instantaneous.
Unlike some other libertarians, I am not an advocate of compelling banks to not engage in fractional reserve lending. In a free market system, I believe it should be allowed as long as the parties are made aware of the situation.
But if 100% reserve banking were needed to get back to a free market banking system, it would be hard to oppose in the short run as a transition measure.
Over the last 8 years, banks have piled up a couple of trillion dollars in excess reserves. It would be far easier to get to a 100% reserve system than it was a decade ago. In this sense, the banking system is actually a little better off than it was in 2007/ 2008.
In a 100% reserve system, the banks would not be allowed to lend out money unless it were based on deposit money that is not instantly redeemable. In other words, the money sitting in your checking account could not be loaned out. It would mean that you would probably have to pay higher bank fees, but it would also likely mean a more stable banking system.
The banking system is one of the biggest and toughest issues we have to deal with. It is so heavily controlled by the government, it is hard not to use some government solutions initially to get us out of this.
I hate writing and discussing this issue in a sense because I feel as though I am giving up my status as a hardcore libertarian by advocating interim measures and quasi-government solutions to get out of the current mess. Still, it is a subject that is mostly avoided by libertarians (and everyone else) and I haven’t really heard a better solution that doesn’t involve total chaos.