John Galt is secretly on the dole

One of the enduring fantasies of the "libertarian" ideology is that there is a bright line between private-sector economic activity and the government - that "private" businesspeople work, produce, create stuff for their daily bread, while government workers get theirs by looting it from the private sector. This idea was on display when Rand Paul called Obama's criticism of BP "un-American".

There's just one small problem with this idea: it's utter bullshit. There is almost no company in our economy that succeeds without some sort of government assistance, and very rarely is that assistance limited to the kind of stuff that "libertarians" tolerate (protection of property rights). The government auctions off land to oil companies and mining companies. It auctions off electromagnetic frequencies to broadcasters. It dishes out massive R&D subsidies to tech firms, hires construction firms for infrastructure projects, supports U.S. manufacturing through defense contracts, boosts land prices through zoning laws, protects finance companies with favorable regulation and implicit guarantees of support, protects uncounted businesses from competition via licensing, and gives local monopolies to power companies. And this is by no means an exhaustive list.

Take the case of BP. Ryan Avent:

[I]f there is a greater potential risk at out-of-the-way fields, with greater potential social costs, then [the economically efficient policy is that] that cost should be reflected in the price of oil, ideally by a consumption tax, the proceeds of which could be used in part to finance a clean-up fund.

But the interesting point there is that such a tax would change the economics of drilling risky fields. Say ultra-deepwater wells become profitable with oil at $70 per barrel. An appropriate tax on environmental risk, however, might increase the sale price of the oil to the equivalent of $90 per barrel. But that price increase would reduce the amount of oil demanded, and that reduction in demand would mean that some subset of risky wells would become uneconomical. What we're seeing, in other words, is that some current drilling is only profitable because of the implicit subsidy to industry associated with the fact that oil companies don't have to face the full social, environmental, and economic costs of their accidents.

The fact is, the brilliant gung-ho individualist entrepreneurs that are the hero of Ayn Rand novels are, in practice, critically dependent on that looting, mooching government for their daily bread*. This does not mean that they are not brilliant, gung-ho, or individualist, or that there is nothing about them to admire. But it does mean that the government is an important stakeholder in those "private" businesses. When private businesses accept government largess and then turn around and do things that hurt the people to whom the government itself is beholden - the voters - then it is perfectly just, and even efficient, for the government to punish those private businesses.

This is something that smart libertarians have yet to admit, and Republican voters in general have yet to comprehend.