The word libertarian does not mean a person who values unfettered free markets, and a large amount of social freedom. The word was changed (in America) from its European definition where it was used to describe social anarchism (the kind supported by Kroptkin, Bakunin, Malatesta, Makhno and many others, google them if you’ve never heard of any of them). So in the United States, when most people use the word libertarian, they are not referring to the European meaning (and the true meaning IMO), they are referring to the philosophy of an obscure political party, known as the Libertarian Party (there are libertarians that are not in the LP but this is the most recognizable political party for libertarians in the U.S.). The Libertarian Party describes itself as being for “smaller government”, “more freedom”, and “lower taxes”. The lower taxes (if one has any money with which to pay them), and smaller government might be true, but the more freedom aspect of their program (if they ever got their harebrained schemes through congress) I highly doubt would hold up.
Markets are not the solution to all problems. The expression free markets is often misinterpreted to mean that unregulated markets are all that is needed for markets to work their magic and achieve efficient outcomes. Deregulation or privatization may even move the outcome further from the ideal competitive benchmark rather than closer to it, it depends upon the particulars of the market in question. The conditions for perfect competition have to be approximated as much as possible and sometimes that means the presence – rather than the absence – of government regulation.
Austrian-born free-market economist Friedrich August von Hayek suggested that high taxation would be a “road to serfdom,” a threat to freedom itself. There has been a decades long debate between economists and politicians on how to reconcile the unquestioned power of markets with the reassuring protections of a social safety net. Libertarians and conservatives have long argued that the higher taxes needed to fund higher levels of social insurance would cripple the economy. But when Scandinavian social democracies (Denmark, Finland, Norway and Sweden) are compared to Anglo-Saxon countries (Australia, Canada, Ireland, New Zealand, the U.K. and the U.S), the Scandinavian countries outperform the Anglo-Saxon ones on most measures of economic performance.
Poverty rates are much lower in the Scandinavian countries, unemployment rates are roughly the same in both groups (though just slightly higher in the Scandinavian countries). The budget situation is stronger in the Scandinavian group, and with larger surpluses as a share of GDP. There are numerous ways, in which the Scandinavian countries manage to keep up their dynamism (despite higher taxes); most importantly, they spend unsparingly on research and development and higher education. All of the Scandinavian countries, but especially Sweden and Finland, have taken to the sweeping revolution in information and communications technology and leveraged it to increase global competitiveness. Sweden now spends nearly 4 percent of GDP on R&D, the highest ratio in the world today. On average, the Nordic nations spend 3 percent of GDP on R&D, compared with only 2 percent in the English-speaking nations.
The Scandinavian countries have also worked to keep social spending compatible with an open, competitive, market-based economic system. Tax rates on capital are relatively low. Labor market policies pay low-skilled and otherwise difficult to employ individuals to work in the service sector, in important quality of life areas such as child care, health, and support for the elderly and disabled. The results for the households at the bottom of the income distribution are astoundingly good, especially in contrast to the mean-spirited prescriptions that now pass for American social policy.
The U.S. spends less than almost all rich countries on social services for poor and disabled individuals, and it gets what it pays for: the highest poverty rate among the rich countries and an exploding prison population. In actuality, by being miserly with public spending on health, the U.S. gets much less than it pays for, because its reliance on private health care has led to a ramshackle system that yields less than desirable results at great costs.
Von Hayek was wrong. In egalitarian democracies, a generous social-welfare state is not a road to serfdom but rather to a just society, economic harmony and international competitiveness. Libertarians, and their schemes of bare bones taxes, and regulation are also wrong. They’re not only wrong, but they’re blind to the economic realities of what taxes and regulation produce.