State Capacity Libertarianism Reviewed

At the beginning of 2020, Tyler Cowen brought forward a formulation for what he tentatively dubbed “state capacity libertarianism”. More than a few events of global significance have transpired since then, but the idea has remained in my head and has been spreading through the world of political economy. I have been meaning to engage with the concept and synthesize some of its precepts with my own view on political economy and the role of the state – versus the absence thereof – in crafting a “good” society.

I would recommend that anyone reading this piece read the outline of State Capacity Libertarianism (henceforth SCL) as outlined on Marginal Revolution. For those who do not choose to do so, and also to be up front about my own mental summary of what SCL means to me, I would summarize it as this: Cowen’s definition starts from the libertarian precept that the market should be largely free and should be the primary instrument for determining the allocation of resources within and between countries – and that the state should in general do no more than is necessary. Where Cowen’s definition breaks with this traditional libertarian minarchical view, however, is in taking a much more expansive view of what is “necessary”, seeing an important role for the state in subsidizing scientific research, financing megaprojects, and building and maintaining infrastructure. Cowen also sees SCL as having high state authority and capacity in enforcing its narrow responsibilities, and also is interventionist (or at least not anti-interventionist) about allying with or fostering kindred regimes around the world.

My own views come from a prior synthesis – a college leftist who went to work for the Oklahoma Department of Commerce, and interacted with the application and rationale of supply-side principles into the real world. In my time working for the government of one of the most pro-business states in the US, I learned that what most people want most is good jobs, and what job providers want most is a good workforce, a thing sadly missing in many areas that are most badly in need of jobs. For an area to have a good workforce it needs technical schools and universities to prepare the workforce, medical providers to keep them healthy, and infrastructure to get them to the jobs. I thus view the relationship between business and labor as inherently cyclical, with the role of the government in the economy to prevent stagnation and keep things moving dynamically. It is thus no surprise that one of the most highly sought tax incentive programs of the state essentially subsidized the education costs of aerospace engineers.

What I arrived at is a formula I would dub a kind of neoliberal socialism or, to coin a decidedly inelegant term, “Growthcialism”: I too start from the highly evidenced proposition that a mostly free market and economic growth are of primary importance to societal wellbeing as well as the vitality and longevity of a nation-state. But I depart from the libertarian (and SCL) formula in thinking that the market and economic growth can and should be fostered by social programs that maximize economic efficiency, worker productivity, innovation and general economic dynamism. In one view, I am essentially a modern Hayekian, though with a leftist take on Hayek’s view on the role of regulation and government interference:

“The successful use of competition does not preclude some types of government interference. For instance, to limit working hours, to require certain sanitary arrangements, to provide an extensive system of social services is fully compatible with the preservation of competition. There are, too, certain fields where the system of competition is impracticable. For example, the harmful effects of deforestation or of the smoke of factories cannot be confined to the owner of the property in question. But the fact that we have to resort to direct regulation by authority where the conditions for the proper working of competition cannot be created does not prove that we should suppress competition where it can be made to function. To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies – these tasks provide a wide and unquestioned field for state activity”

Hayek, Road to Serfdom, 46

But on the whole, the historical evidence is clear that markets and capitalism are indeed powerful and should be channeled rather than opposed. The success stories of East Asia in the 20th century are golden examples of the power of export-oriented, mostly capitalistic industrialization, though analyses such as Joe Studwell’s How Asia Works do illustrate an important role for active state intervention in such areas as land reform, export quotas, and a protected fostering of capital markets. However, that consensus seems most applicable to industrializing or industrial economies like those of East Asia in the mid-20th century. Observations of Northern European economies (Germany, Denmark) demonstrate that substantial social programs are not antithetical (and may be necessary preconditions) for growth and competitiveness in post-industrial economies.

To discuss one area where I disagree with SCL, consider Cowen’s[1] hand-waving dismissal of social programs with the curt phrase “demands of mercy are never ending”. Social programs viewed through the “growthcialism” lens are not mercy – they are net benefits to the overall economy. They improve the quality of the workforce, they distribute costs associated with goods that have distributed benefits (such as health and education), and they improve things like labor mobility, an underrated measure of overall labor market health. In this way they work exactly like small-scale megaprojects, which Cowen/SCL openly embrace. One of the many touted pro-libertarian benefits of UBI is its supposed ability to liberate people to pursue their dreams, to innovate with startups or tinker away at inventions. The same holds true at least in part for programs that free people from the need to work through college to pay for tuition, or that allow people to quit their jobs without fear of losing medical coverage.

To tangentially segue, I began my university education in Chemical Engineering, and I have always maintained an engineer’s viewpoint when addressing questions of political economy. I find that good social program and megaprojects work very similarly to the chemistry concept of Activation Energy: sometimes a chemical reaction is primed to happen and would be able to sustain itself once it begins occurring, but it requires some sort of exogenous “push” to get the ball rolling (a mundane metaphor would be a boulder at the top of hill that just needs a jolt to get rolling).

A worthwhile megaproject or social program is like an exothermic reaction – even though the initial cost may be prohibitive for some actors, once it is overcome the net output can be highly positive

Megaprojects like the interstate highway system, Hoover Dam, Manhattan project, Apollo Program or national broadband can have prohibitive startup costs that even the largest private corporations would struggle to justify maintaining on their balance sheets for years, even if on the scale of decades they are clear economic winners.[2] For governments, however, these costs are often drops in the bucket, and investments in national wellbeing do not have to be recouped directly; growing GDP is often justification enough for investments in the minds of bondholders. If SCL advocates see megaprojects as beneficial, why does a college education, effectively a megaproject in the life of an individual, not count as a mass-distributed megaproject? Why does the same logic not apply?

In short, Growthcialism also starts from the libertarian precept of the power of the market and the immense social good of economic growth, though with some caveats about the market taken into account.[3] However, the SCL still shares with classical libertarianism a core false assumption about human nature, the idea of a homo economicus capable of making rational calculations about things like healthcare and education. The problem is that homo sapiens often has trouble calculating things that involve such factors as social standing, present-versus-future utility, etc. High upfront cost of education or medical treatment may never at any one point be worth it compared to a slow trickle of marginally lower productivity or earnings over a lifetime, and we are all familiar with the reasons why medical treatment does not obey the traditional assumptions of supply and demand.[4] The state has an active role to play in transforming those high upfront costs into low lifetime costs via tax-funded public financing of health and education.

Coming as I do from a left-leaning perspective (meaning that my median policy position falls on the left of the American political spectrum, though I have opinions (and follow academic consensuses) that fall all over the map), SCL presents an interesting alternative model to the libertarianism I have grown up knowing and rejecting– and indeed, it presents a model of libertarianism that is steelmanned and harder to assail. And if SCL is the rival to a left-leaning welfare state and this is the dialectic for the creation of new sociopolitical regimes around the world, I think the world will be better for it. However, these are changing times, and populism and nationalism are infusing national politics around the world, from the US to the EU even unto China. Increasingly, governments are pressured to be interventionist and responsive, to embrace democratic legitimacy over rationality and science, as the state is forced into a mode of reactivity against a public armed with ever more powerful hooks and levers (a la Martin Gurri). My fear is that unfortunately both Growthcialism and State Capacity Libertarianism are naïve idealist views, and that politics, as usual, will find a way to screw everything up.

[1] It is (perhaps intentionally) ambiguous whether Cowen is describing his own views. However, as Cown has in the past described himself as libertarian, and says that “smart libertarians” have gravitated to SCL, it seems a safe assumption that Cowen is attempting to codify his own views via the coining of this term. What’s the Straussian reading, as Cowen would say?

[2] and private corporations might struggle to actually harvest the diffuse economic benefits.

[3] For me the primary errors of market fundamentalism are that 1, need is not concomitant with ability to pay; and that 2, need (defined as real material benefit of a good or service) is not coterminous with want (the perception of material benefit of a good or service), the decoupling of these being the entire foundation of the field of marketing, to the end of being able to inflate the latter.

[4] Urgency, lack of transparency, possibility of complications, high barriers to entry, etc

5 thoughts on “State Capacity Libertarianism Reviewed

  1. medical providers to keep them healthy

    Do they really? There have been multiple randomized experiments in which people got more access to health care and consumed more of it, but without much difference in actual health. Internationally, richer countries spend more on healthcare but past the level of Spain there doesn’t appear to be any benefit.

    That first link comes from Tyler’s GMU colleague Robin Hanson, who relies on signalling to explain many odd economic phenomena. Their fellow GMU economist Bryan Caplan wrote “The Case Against Education” arguing that signalling & ability bias explain most of the supposed benefit of college education. These factors will cause the educated to indeed appear more productive on the micro level (and thus more desirable to employers), but increasing the level of education does not help a country at all. Other economists faced with such negative results from their macro Mincer regressions have resorted to saying that perhaps education is just teaching people to engage in rent-seeking!

    Liked by 1 person

    1. Thanks for sharing your thoughts. Healthcare policy is to me an absolute morass with so many “yes, sure, but”s that there’s too much room for everyone to just read their biases into everything so no one’s priors are going to move all that much*. For example, regarding the Hanson’s cited studies, I would say the first study was done before US healthcare costs/outcomes diverged significantly from the rest of the developed world, the second study looked at participants who were already poor and sick and thus may have had chronic behaviors or conditions that could not be significantly corrected (and both of these are simply putting more money into the existing “healthcare culture” (see the asterisk point below). Regarding the Karnataka study, I just don’t know enough to comment, but A) I think there’s also that healthcare culture issue that probably doesn’t change that much even with these interventions, and B) I’m generally skeptical of the ability to generalize results between WEIRD and non-WEIRD societies.

      Regarding education, I’m more inclined to agree. Traditional Education is in dire need of an overhaul or complete explosion and I’m more or less convinced by Caplan’s arguments, but regardless of what you stuff into the term “education”, people have to *learn things*. Whether it’s on-the-job training or Khan Academy or self-directed research and reading and experimentation, people have to expend time and effort on this, this has an economic cost (either direct or an opportunity cost) and employers are not going to invest in doing this for employees if they could just open up shop somewhere else and have a pool of already-skilled employees. That’s just simple economics; the factor input is cheaper. So whether it’s technical schools, broadband access, outdoor learning gardens, or traditional classroom instruction (there are probably some fundamental things that can be imparted decently in this format, such as language/history/civics, if only to create common cultural touchstones to create some sense of social solidarity, which I do think has some value), the state can offload the common costs of much of this formation from businesses or individuals. There is also value to standardization, knowing that a worker with a license for X in California does actually know the same X as the same worker in Oregon – signalling is sometimes superficial but can be correlated with real value.

      Anyway, there’s clearly more to say on all of this. Happy to continue the discussion but I don’t wanna beat a dead horse by dragging out this response too much.

      *My prior being pretty convinced that the US just has a broken “healthcare culture” – i.e. the culture that has grown up around the way people interact with healthcare providers and will be resistant to change (both of the system and in reaction to the system). In practice in many instances the profit- and insurance-based system is too expensive and/or tiring to deal with such that people often adopt a cognitive dissonance “fuck it, I’ll suck it up” attitude whereas in the same person in, say, France would not hesitate to go to their physician. This is deeply personal and related to identity and self-reliance – I’m living in France right now and my French inlaws are constantly trying to get me to go to the doctor for things that I think are just not worth the fuss. People in emergency situations in the US regularly decline to call ambulances for fear of them being too expensive; that’s clearly a broken healthcare culture. This culture doesn’t just go away just because you make it less expensive – it remains fatiguing and the “fuck it” attitude remains present.


      1. I’m somewhat surprised to hear other cultures are more eager to go to the doctor. So then I suppose the US consuming more healthcare services could be mostly a matter of how much we do for the elderly.


    2. So I wanted to make sure that wasn’t just speculation from my anecdotal experience. Turns out it is statistically the case, but I’m having trouble pinning down to exactly what extent.

      OECD data has very robust data on this ( for every country BUT the US!

      One source pins the US visits at 4 per capita per annum (, but this source seems pretty biased. Forbes picks up their number ( But I can’t find any other stats here.

      There is national data for *why* people avoid seeking healthcare:

      In any case, it does seem clear that it is not simply and institutional/cost issue; there are major cultural differences resulting in poor health outcomes in the US, namely diet and mobility issues. There is substantial work to be done on individual habits to fix American health. But clearly there is an economic issue going on as well:


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