The Nature of Intervention in the Liberal Order - The Library of Economics and Liberty

31 March 2020 - Many critics may wonder how advocates of classical liberalism would have us respond in a crisis; it was the first question alluded to in a recent interview from Amy Willis with David Henderson.

Garreth Bloor 

Many critics may wonder how advocates of classical liberalism would have us respond in a crisis; it was the first question alluded to in a recent interview from Amy Willis with David Henderson.

Friedrich Hayek observed “the range and variety of government action that is, at least in principle, reconcilable with a free system” is “considerable”. Cato’s Constitutional law fellow  William Yeatman provides near real-time examples amidst the COVID-19 pandemic (numerous interventions involve reducing barriers to entry for those trying to address COVID-19 through social cooperation using markets).

How does government take action respecting free people, and can it do so with consistent principles in ordinary times and periods of crisis?

This question strikes at the heart of the nature of economic intervention and regulation in a liberal order. What form they take can be incompatible with principles of freedom, assuming the importance of liberty in delivering the common good.

Perhaps an immediate dichotomy can be drawn between what I wish to term “outer-” and “intra-market” government regulations or interventions.

Outer-market measures are those actions that do not enable markets but rather excessively distort or suppress them, impeding the flow of information and entrepreneurial action that orders talent and energies toward solutions. Outer-market measures by definition are inserted from outside the market. Among the most well-known is the recently dropped CDC requirements for COVID 19 tests. As the Washington Post reported “The U.S. efforts to distribute a working test stalled until February 28, when federal officials revised the CDC test and began loosening up FDA rules that had limited who could develop coronavirus diagnostic tests”.

The previous measures in this case had prevented millions of Americans from knowing whether they had the virus. Outer-market measures impact the millions of people buying and selling in the daily decisions that constitute the market as an information system at its most effective.

Where government is both funder and administrator may perhaps serve as the best indicator of an outer-market regulation or intervention. All downplay human agency in favor of a mechanical or managerial view of the economy.

In contrast, intra-market measures by government enable participation within existing or new markets, shaped by an ever-wider number of participants. The emphasis here is on the excluded being empowered to enter the social system by way of the marketplace. In the COVID 19 test example, conditions for the supply of tests by private firms under clearly set rules both enable widespread testing and still provide the option for procurement of tests by government for those who require them.

Intra-and outer-market measures matter for the bigger picture facing governments and how they respond in the coming weeks and months on fiscal measures: “Understanding the differences between policies aimed at stabilizing incomes versus stimulating economic activity, and their actual effectiveness are key to responding to the current economic downturn,” according to the leadership at the Fraser Institute.

Though fiercely but constructively critical when they deem it necessary, the Institute says the Canadian government’s response to the economic downturn from COVID-19 “seems to be measured and well-targeted at income stabilization.” Their assessment may go to the heart of the intra vs outer market dichotomy.

In addition to Employment Insurance (EI) already in place, tax deferral, flexibility on mortgage payments and access to retirement savings are among the measures from Ottawa.

Back in the United States, interventions considered by David Henderson include government lending funds at a lower interest rate (including lending up to 60% of the previous years’ taxes paid) and loans to companies with call options on the stocks of those receiving loans. He notes governments can quite easily lend at lower interest rates.

Fraser’s Jason Clemens, Niels Veldhuis and Milagros Palacios argue – by contrast – that “stimulus” measures are a different story entirely. “As the term implies, stimulus is meant to evoke a specific reaction. It seems whenever the economy takes a sudden turn towards recession, economists revert to a rather mechanical understanding of the economy and the need for “stimulus.” Often, these “solutions” have nothing to do with economic recovery, often waste vast sums of taxpayer money and fail to address the underlying cause(s) of the recession.”

Stimulus, in their summation, involves making people to do something “above and beyond the status quo, whereas the stabilizing policies referenced earlier are concerned with solidifying normal levels of spending”.

Values-based principles and narrow ideology are as different as the types of measures government can put in place to address an unprecedented situation, requiring both humility and collaboration. Nevertheless, liberal principles should remain in focus in assessing and addressing the range of policy options available, to ensure millions, if not more, can stay afloat and remain resilient. Intra- vs outer-market interventions are one way I’ve personally conceptualized broadly analyzing the policy options at play.


Garreth Bloor is a council member of the IRR, the oldest classical liberal think tank in South Africa. He served as a former executive politician in the country and is the founder of a venture capital firm. Bloor now resides primarily in Toronto, where he heads The Canada-Africa Chamber of Business.

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