I Do Not Think That Word Means What You Think It Means

Seems like its Economics Tuesday here at Shiny Ideas. Next up is this statement from Amanda Marcotte:

I would also like to take this time to point out that the libertarian argument that markets correct themselves without interference from the government is neatly disproved by the very existence of Power Balance bands, and alternative medicine in general. The notion that consumers are generally rational and that bad products will be shoved off the market without assistance from regulation is farcical to begin with, but these wristbands were selling like hotcakes.

Eh... no. Amanda is making a (common) mistake regarding the meaning of the word "rational" as it applies to economic decisions. Per Wikipedia:

The "rationality" described by rational choice theory is different from the colloquial and most philosophical uses of the word. For most people, "rationality" means "sane," "in a thoughtful clear-headed manner," or knowing and doing what's healthy in the long term. Rational choice theory uses a specific and narrower definition of "rationality" simply to mean that an individual acts as if balancing costs against benefits to arrive at action that maximizes personal advantage.[4] For example, this may involve kissing someone, cheating on a test, using cocaine, or murdering someone. In rational choice theory, all decisions, crazy or sane, are postulated as mimicking such a "rational" process.

Rational choice theory has little or nothing to do with whether people are behaving "rationally" in the colloquial sense of the word. And, honestly, libertarianism doesn't say much of anything directly about either rational choice theory or the efficient markets hypothesis (which Amanda also seems to be implicating via her use of the phrase "markets correct themselves"). What libertarianism does do, however, is recognize that people have different conceptions of "the good" which, of necessity, means it is broadly tolerant of people doing things which may appear foolish/irrational provided that they don't impinge on the liberties of other. This includes spending money on quack remedies.

The alternative view, which Amanda is implicitly endorsing, is that people are too dumb to be allowed to spend their money freely¹. Instead government must become the gatekeeper and arbiter of what we can and cannot do, can and cannot buy. Which is a horrendously bad idea for the following reasons:

1. It denies the fundamental autonomy of our fellow human beings. People must be given the liberty to make choices, even ones which we (subjectively) judge to be ill-advised.
2. Giving such arbitrary license to the government leads, in its worst extremes, to stupid, pointless shit like the War on Drugs.
3. Increased regulation of advertising, in this case at least, is a band-aid. The inability of the general public to evaluate dubious medical claims is ultimately a failure of science education, so the most effective solution is to improve science education.

Finally, I want to address the following:

Of course, the next gambit in the argument is that people who make stupid choices Have It Coming. Of course, this presumes---irrationally---that there’s an objective standard of justice in the universe and that bad things only happen to people who are stupid or mean.

I call bullshit; that's a strawman. Libertarians recognize that bad shit often happens to people for no reason at all. Our contention is that, for reasons such as those given above, trying to protect people from all the bad shit that might befall them is worse, in the long run, than allowing people to fend for themselves. The idea that libertarianism is the refuge of scoundrels and charlatans is demonstrably false.

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1 I'm actually inclined to agree with her as a matter of personal opinion, but that doesn't mean that my opinion makes good public policy.