When I see the same lesson reinforced by two unrelated stories, I have to wonder if the universe isn’t trying to tell me something.   It’s called “synchronicity.”  Two very different incidents, the BP oil spill and Rand Paul’s comments on discrimination by private businesses, clicked together in my mind as illustrations of the same principle.

First, in his reaction to the BP oil disaster, Paul Krugman comes very close — but not quite — to stating the libertarian argument against attempting libertarian reform through the state.  He begins by quoting the standard libertarian argument that the positive goals of the regulatory state could just as easily be achieved through tort law:  if there were a vigorous common law liability regime with no state-imposed limits on third-party liability, investors wouldn’t put money into enterprises without robust liability insurance.  And the insurance companies would have powerful economic incentives to impose strong inspection regimes on insured companies to make sure they didn’t, say, cut corners on safety measures to cut off oil flow in the event of a mishap on an offshore drilling platform.

The problem, Krugman says, is that the state did cap liability, so this economic incentive doesn’t exist.  And captive politicians are now refusing to raise the liability cap, because it would impose such prohibitive costs that fewer people would be drilling for oil.  When a politically powerful industry is demonstrated to be incapable of making a profit without the government socializing its costs, you suddenly hear a lot of crickets chirping among those formerly vocal “free market” advocates on the Right.  And, Krugman argues, this is a telling argument against the free market agenda:  the prerequisites for a properly functioning free market regime are politically impossible.  Hence:  “If libertarianism requires incorruptible politicians to work, it’s not serious.”

But Krugman also misses something:  how is it that free market reforms like restoring vigorous tort liability are impracticable because they require incorruptible institutions, but the same critique doesn’t apply to reforms that require strenthening the regulatory state?  Are “progressive” regulations made by legislators from a different species than those who refuse to make the oil companies accountable for the harm they cause?  There’s a large body of literature suggesting they aren’t:  that regulations usually reflect, in large part, the interests of the regulated industry.

That general principle applies to some of the most popular regulations among “progressives”:   for example, the 1906 Meat Inspection Act.  As recounted in detail by Gabriel Kolko, in The Triumph of Conservatism, the primary political force behind that legislation was the big meatpackers.   And that same general pattern seems to prevail throughout the historical periods that “progressives” consider their Golden Age:  the regulatory state wasn’t something imposed on big business from outside, against its will, but rather the creation of the regulated industries themselves acting through THEIR state.

If Krugman’s point is that it’s politically impossible to create a just free market civil liability regime that holds corporate malefactors accountable, because the political pull of the affected industries prevents it, you’d think it would suggest some implications to Krugman about how the sausage is made in the regulatory system he prefers.

Krugman actually hits on the precise reason why attempting libertarian free market reforms through the state is an uphill struggle:  the state, by its very nature, is a tool to be used by corrupt interests, and they will always have the political advantage over those who attack them. Whatever effort we make to remove subsidies and protections from politically favored corporations, the final form of any legislation will reflect in large part the influence of those corporations on the legislative process.

For market anarchists, therefore, the way to achieve free market reform is to treat the state as irrelevant.  The most productive thing we can do is build the counter-institutions for an alternative society despite the state, while state capitalism dies from its own internal contradictions.

To be continued.