The chief question at issue between Matthew Yglesias and myself is how best to remedy this situation. There would seem to be three possible options:
1. Either abolish or radically diminish the power of the state.
2. Keep the state as it is but demand that it remain neutral and noninterventionist.
3. Use the state actively as a tool against corporate power.
Yglesias seems to think that the libertarian solution is (2), which he rejects as unrealistic. The “concept of a state apparatus that simply sits on the sideline watching the free market roll along” is “impossibly utopian,” Yglesias argues, because people will inevitably “try to manipulate the state to advance their own ends.” Hence Yglesias favors (3) instead.
But of course the libertarian—or at least the radical libertarian—agrees with Yglesias that a passive bystander state is utopian, and so favors (1) rather than (2). But for the libertarian, (3) is impossibly utopian as well; the incentival and informational perversities that beset the state are inherent in its monopolistic nature, so that the hope of achieving benign outcomes via the state is a chimera. (1) may be difficult to achieve given the prevailing political climate, but unlike (2) and (3) it poses—or so we libertarians claim—no inherent, ineradicable tendency to instability, and so is the least utopian option of the three.
I favor something between (1) and (2). I say “something between” because the diminution of power I have in mind probably isn't “radical” in Rod's book. But, unlike (1), (1.5) I think it quite feasible. It's feasible because (2) is. The argument that (2) is feasible is that successful liberal democracies are already relatively limited, neutral and noninterventionist. Theirs are by no means Rod's “freed” markets, but they are also a very long way from maximally unfree markets. Indeed, some of the most successful existing societies such as Denmark, Ausralia, and New Zealand have come a long way over the past several decades in a freer market direction. We have an existence proof of the possibility of doing better. Rod's case seems to be based on the claim that “achieving benign outcomes via the state is a chimera,” but this seems obviously false. Many states evidently succeed in achieving relatively benign outcomes. Further, the claim that (1) has “no inherent, ineradicable rendency to instability” strikes me as completely conjectural. If (2) is unstable because people will demand state interference in the economy given a state, then (1) is unstable because people tend to demand states. Perhaps Rod has some account of how we get from here to (1), and an account of how (1) tends to generate it's own popular support, such that demand for a larger state does will not tend to reemerge. But until I see that account, the claim that (1) is especially non-Utopian strikes me as weird.