The fatal flaws in Libertarian Economics

Nobody loves formalizing my critiques of Neoliberalism more than I do.

The populist Left and populist Right are converging on the same foundational critique of what is known as the neoliberal status quo - the hyper-individualist free market ideology that undergirds western society.

As a radical centrist, I share this critique. The following are the key flaws I see in classical libertarian economics.

Human beings are not rational actors

The fundamental belief of libertarian economics is that individuals are rational actors who make the best economic decisions they can, given the resource and information they have available.

This is self-evident nonsense.

There is arguably nothing more rational then eating relatively healthy and exercising occasionally. Yet many people do neither. This is because the neocortical part of our brain that evolved for rational thinking exerts very little influence on our behavior compared to our limbic systems.

The entire ideology of neoliberal economics hinges on this one amorphous concept called utility. Utility is the subjective pleasure, happiness, or benefit that an individual gets from consuming a good or service.

My fundamental critique of the libertarian conception of utility runs along similar lines as Jordan Peterson’s critique of Sam Harris’s Secular Humanist concept of well-being. It’s vague and ill-defined.

Does a heroine addict get utility from buying heroine? According to libertarian economics, we would say yes, because the addicts purchasing behavior points to that. This is of course absurd.

When you realize that 21st century consumerism is filled with the digital equivalents of addictive substances - iPhones, Tik Tok, Pornography, etc. - you can begin to see the problem with assuming that because people spend their money and time on things, it must be providing them with utility.

When it’s your brain versus hundreds of billions of dollars of research and development designed to hack your nervous system, your brain is going to lose. Mega corporations like Amazon and Meta are essentially getting you addicted to their products so you spend more time and money on them, even though your wellbeing suffers as a result.

Wealth inequality is objectively bad

There is a classic economics experiment called the Ultimatum Game.

In it, one person (the proposer) is given $100 and decides how to split it with another person (the responder). The responder can either accept or reject the offer. If the responder accepts, both get the proposed amounts; if they reject, neither gets anything.

If human beings were rational actors, then the responder would be willing to accept any split, even if they only got $1 and the proposer’s got $99 (because something is always better than nothing).

But most of the time, responders will reject offers like this because they view it as unfair, proving that people care about inequality more so then they do personal gain.

I often cite one of Jordan Peterson’s lectures where he explains how the correlation between wealth inequality and male homicide is the strongest correlation in the social sciences (followed by IQ and academic success).

Libertarians do not believe it’s a problem if the ultra wealthy become exponentially wealthier, as long as those at the bottom improve marginally over the same time period. This goes against everything we know about human psychology.

This is just a cursory overview of my problems with neoliberalism. I have been reaching out to various economics professors and libertarian influencers to get feedback on these critiques directly.

We’ll see if that happens.