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You have to go back to 1946, in the immediate aftermath of World War II, to find spending that equaled as large a percentage of GDP [as it does now]. You need to return to 1945 to find a deficit that big on a percentage basis as well.

One might be tempted to point out that in response to this massive post-war debt, the U.S. government invested even more money into the economy ? and things didn't turn out so badly. But, as further government action to stimulate the economy is no longer even on the table, why bother?

As Senate Majority Whip Dick Durbin lamented, the recent debt ceiling deal signaled the "final internment" of Keynesian economics, which guided American economic policy through much of the (very prosperous) 20th century. Conservative curmudgeon George Will, who may be old enough to have donned his bowtie in the presence of Keynes himself, put it more succinctly: "America is moving in the libertarians' direction."

This is good news for Nick Gillespie and Matt Welch. Not many Americans really understand what libertarianism is, and this passionate and articulate pair have just written as succinct and entertaining a treatise on its principles (the fewer the better) and spirit (Johnny Rotten meets Margaret Thatcher) as you'll find. Not surprising. As editors of Reason magazine and Reason TV respectively, they've had plenty of practice writing, talking, and blogging about libertarianism ? and cheerily pissing off both right and left along the way.

As the title of their book implies, The Declaration of Independents, Gillespie and Welch see the answer to our current predicament outside of our sclerotic two-party system. Probably a good thing ? which party would have them? You can't be for gay marriage and legalizing pot and giving women full control over their bodies and slashing the military and find a home in today's Republican Party. And what Democrat would welcome anyone who so often sees government not just as a problem but as a joke.

And yet today, in six states (and the District of Columbia), gays can get married. At the same time, it appears that we are also about to see the largest contraction in government since, well, since World War II. Maybe George Will is right.

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Chris Farley: One thing I was really struck by is how palpably optimistic the book is. Not a whole lot of that going around these days. So, why don't we start there: Why are you feeling so optimistic?

Matt Welch: It's very strange, that is probably the number one reaction to the book. Right, Left, libertarian, whatever, people are saying, "Why are you so damned optimistic?" We really didn't go in to this saying, "Hey, let's just out-optimist the competition," but Reason magazine, which has been around since 1968, has always had an almost pre-Wired magazine sense of techno, futuristic optimism that we're broadly getting better in the world ? which we actually are, compared to the world that we all grew up in.

We grew up in a time where half of the world ? or, at least, it seemed like half ? was living under darkness and Communism and was a poor, undifferentiated mass of red or black nothingness east of Berlin. And that was the world that we were going to live in forever. As it turns out, we didn't live in that world forever. China and India were supposed to have starved to death by now.

Nick Gillespie: The social milieu that gave rise to Reason in the late '60s was very apocalyptic, and it included people on the Right and the Left. The Right thought the Rapture was coming and they were going to float away to Heaven. On the Left, it was famine, and you wouldn't be able to breathe in cities ? everything was going to hell in a handbasket.

But, by the same token, there were people like the guy who founded Reason and the people who did the Whole Earth Millennium Catalog, Stewart Brand, and whatnot. I think that's where part of the optimism comes from. If you're gay, if you're black, if you're a woman, if you are a lover of fine foods, if you like TV, if you like movies, if you like books, this is a fucking great time to be alive. If you think of it this way, even with the shitty economy, things are getting better.

When you look at the last redoubts of the old model, whether it's in K-through-12 education, healthcare, retirement, you know, that's all bad. But this stuff in the good part of our lives is really incredible. And, it's winning. That's what's new. Not the fact that schools suck and that healthcare is too expensive and a pain in the ass and that you can't plan your retirement very well. That's all been around, but this other stuff is new.

Welch: There's reason to see, to use a debased phrase, "green shoots," even in these public-policy areas. Fifteen years ago no one was talking about concepts such as charter schools, home schooling, or medical marijuana. These have all been created in the Internet era. People are beginning to figure out ways to route around these fossilized and lousy government situations and create their own reality.

Fifteen years ago Congress passed the Defense of Marriage Act to prevent any gay people from ever marrying ? period, damnit! And it's amazing, but we're routing around that now, too, to the point where 10 years from now, we're going to all look back and not quite laugh but just wonder, How the hell did we ever even talk about this?

Farley: It's astonishing how different it is for young gay people today than it was for our generation ? or, God forbid, our fathers' generation.

Welch: Think about how on the playground when we were growing up, you would just call anyone a fag. You even didn't know what fag meant.

Farley: I'm sure they still do. [Laughter]

Gillespie: But not in the same way.

Welch: Twenty years ago, Jane's Addiction, to name a band that I love, would have in their songs little breaks like, "Fuck it, suck it, faggot." There were lyrics like "Get your piss cock out of my fucking face" in a lot of popular music 20 years ago. Now, if you say that kind of stuff on the court as an NBA star, you're forced into an abject, humiliating public apology. You have to say, "I don't really have anything against my gay fans." That is incredible.

Gillespie: Just as there are 15 different eggplants you can get at Whole Foods, there are 15 new cultural identities that didn't used to exist. So, in that sense, the world is a much better place. It's a richer place, a more experimental place, a more innovative place. Those are all reasons to be optimistic.

Farley: You are optimistic about things like gay marriage and medical marijuana, but what about climate change? That's a pretty depressing topic that you don't really talk about it in the book.

Gillespie: Well, one of the things that's changed is that 15 years ago you would have called it global warming. Now, it's called climate change. The issue, fundamentally, I think, is not whether or not human behavior has had an effect on the climate, it's what do you do with it?

This is where a type of techno-optimism crops up. For example, South Florida and Bangladesh have very similar weather patterns. The reason why, every year, people don't starve to death or get blown away in hurricanes in South Florida is because they're richer. They build bigger houses. They're able to evacuate more efficiently. They're able to see the weather coming.

There is no question that human behavior has an effect on the world, on the climate, on the planet, which is one of the reasons why people in most parts of the world now live so comfortably. The question is, how do you continue to make the world better for more people? And we're dealing with that. So, Climate change? Yes. But it's also, Climate change? So what? We are supporting many more people than we were 100 years ago, or even 50 years ago, but we're actually living, overall, more peaceably. Air quality in every American city is better than it was there 30 years ago...

Welch: And water quality, too.

Gillespie: And, this may be from a straight libertarian, but some of these changes have been as a result from top-down-government regulations, for sure. But, there are better and worse ways to regulate the economy.

Farley: What has been from top down?

Gillespie: For example, air quality. The single, biggest reason why air quality is better in L.A., in Houston, in Portland, in Seattle, and in New York than it was 40 years ago is because of the top-down decision to get rid of leaded gasoline and replace it with unleaded.

Farley: So, you're not against all government regulations?

Gillespie: No. There are times when there are common-resource issues that need to be dealt with through a regulatory framework that comes from the top down. The question is, do you do it smarter or dumber? We would argue that the best way to do that type of thing is to come up with a limit or some standard that's plausible, and then you allow different people to try different ways to reach it.

Farley: Isn't that what cap and trade does?

Welch: Not really. We could get bogged down in the policy of it, but in the place that it's been tried the most, in Europe, it's just a mess. The self-reporting mechanisms are all screwed up. Probably the best way to deal with it ? if you're going to use a government thumb on the scale to affect carbon ? is by imposing a carbon tax. Then you just change the price. So, let people respond to prices.

The worst way to do it, or one of the worst ways to do it, is how we do do it, especially in the West. We say, "In the year 2025, we're going to have X percent come from wind and X percent from solar." It doesn't take into account the pricing of stuff. You've got to allow for a pricing mechanism out there in the world to create innovations. You can't put the government in the position of picking winners and losers, because the government is terrible at that.

Gillespie: As are most businesses. Mazda is no longer pushing the rotary Wankel engine, which was its big selling point in the '70s when it emerged as a player in the U.S. auto market. It didn't work out so well. You want to open up regulatory schemes to the same kind of choice and innovation and competition that works in other areas.

Farley: So, you're not against regulation, you're just against "dumb" regulation.

Gillespie: Yes. There are better and worse ways to regulate things.

Welch: And the environment really is one of the areas it makes the most sense philosophically, from our point of view, to regulate, because you don't have a clear ownership question. If I own Powell's Books and I burn coal and the guy at the neighboring Whole Foods has to breathe that coal and it makes him sick, well, who owns the air there? That's exactly where regulation is needed.

Gillespie: Yes. In some areas, like water rights, it's actually easier to establish property rights and trace pollutants than it is in the air. Or in certain things like, say, fisheries. People are worried about the depletion of fisheries, it's pretty clear. It's complicated, but, basically, we never run out of chickens because the farmers who own chickens don't kill all of their chickens one year and then say, "Fuck, we're out of chickens." They learn how to roll things over. In the same way, if fishermen were in charge of wild salmon runs, they would figure out a way not to over fish, because otherwise they'd be cutting off their own livelihoods.

Farley: I heard a Ron Paul interview recently, and he seemed to be arguing the opposite, that all environmental problems could be dealt with as property-rights cases through the courts. You know, "I've got my land, you've got your land, if you do something that harms my property, I'm going to sue you." It sounded insane to me.

Welch: Ron Paul is more ideologically based than Nick and I are, but we're constantly asked about him.

Farley: You love Ron Paul, but you don't agree with him on everything.

Welch: I don't love him. I don't love any politician. But, I like Ron Paul and appreciate Ron Paul.

Gillespie: We talk about him in the book. More than anyone else in the 2008 election, he's the reason why there was any discussion of the Iraq War and the Afghanistan War and foreign policy. He's got problems. He's not going to be the next president of the United States. And, yet, you've got to love a guy who is like an 800-year-old obstetrician who was getting college students to come out ? like Obama wasn't, even. So, there's a lot there to love.

Welch: He was talking about legalizing heroin at the last South Carolina debate. That's very interesting. As an intellectual exercise, it's interesting to probe the limits of questions like, do you agree with government sidewalks or not? But let's also remember the world that we live in.

The world that we live in is one in which ? when was it, about a year ago? ? a little girl in Portland had her lemonade stand shut down because she didn't get the right permit for the county fair. You know, "We have regulations here."

And, it wasn't just that she got her lemonade stand shut down, it was that the local Portland city councilwoman or the head of permitting said, "We have to have a process. It's very important that we know what's going to go on in that lemonade."

That mindset is so much more prevalent than the no-government-sidewalks mindset. What we're trying to do in the book is say, okay, we're not talking about a libertarian fantasy utopia. We're asking, how do you bring libertarian insights ? libertarian as an adjective or an impulse ? how do you bring these insights to bear on issues that aren't working very well right now, such as K-through-12 education, and so on?

We're not talking about getting in and ripping everything up. We're talking about introducing some level of consumerism and individual choice into what's driving policies, so that we can get pricing and markets to drive prices down and quality up.

Gillespie: In the interest of making life better and more interesting, weirder and freer. The middle part of the book, "The Democratization of Everything," is a series of case studies of how things have gotten weirder, richer, and more interesting. The end point is ultimately a world that's more fascinating, a world that's more like Whole Foods or Powell's, and less like Safeway or Walden Books.

Farley: Yes, you even had a long section about the recent proliferation of microbreweries in Portland, which is a subject that for many people around here is close to our hearts.

Gillespie: Yes. It's a fascinating case where removing a regulation created a space where all sorts of interesting stuff could happen. A lot of people think, not without reason, that if the government or some type of authority doesn't oversee things, there's just going to be chaos or horrible people taking advantage. But, in fact, with the case of the home-brew revolution, it was pulling away the last vestige of Prohibition, which had forbade home brewing and had forestalled what became known as the Microbrew Revolution.

Welch: When we grew up, the beer was horrifyingly bad. There wasn't any choice in beer, and it tasted awful.

Farley: And today, Portland ? Portland, Oregon! ? has some of the best beer in the world.

Welch: It does, thanks to Fred Eckhardt, who we met for the book and is a great guy. He pushed that first. It's an important point to remember. It wasn't benevolent government that waived a magic wand and suddenly there was Sierra Nevada Pale Ale. It was people pushing, pushing, pushing. When he wrote his first treatise on making lager beer at home he was saying, "By the way, this is technically, all of it, illegal." He linked up with enough people that his pamphlet sold 100,000 copies. It was just mimeographed, and everyone was just grabbing onto it in Portland, in Boulder, Chico, San Francisco, wherever.

They created a culture that the government finally had to recognize, whether it was conscious of it or not. So, we try to celebrate and hasten that process of people pushing open, kicking open the door. The government is a lagging indicator on so many of these changes. It's often just in the way. Not always, but usually. So, let's hurry up the process of people kicking in the door, and let's go through the front door, not the back door.

Farley: One area where I have a difficult time seeing how the principles you're talking about make sense is healthcare. For example: I have a friend who has had a chronic medical condition for several years. He hates his job and would love to leave, but can't. He gets insurance through his employer and can't take the risk of leaving. If he did, he might be refused insurance, or another company might be unwilling to hire him because they don't want to be saddled with the healthcare cost. And in the current system, insurance companies have every right...

Gillespie: ...to discriminate.

Farley: Yes, against people with preexisting conditions. If you have no regulations on the industry, people like him are screwed.

Gillespie: Well, what you of course also were describing is a world where insurance companies are extremely regulated and he's screwed. Right?

Farley: But in countries with more government control, like, say, France, this isn't an issue. A lot of people on the Left look at France and say that that looks like freedom and our system looks like tyranny.

Gillespie: I've talked to French people, and also people who have either chronic or late-term health issues. We walked through this in the book. When you have certain types of serious problems like cancer and whatnot, the survival rates and the treatment rates for everybody in the U.S. are really great. People come here to get treated. Regardless of billing or pay, you're going to do better here. That's not incidental to having a free market in healthcare. But, first off, healthcare is massively regulated here. Also, 50 percent of it is funded by the government. They spend 50 cents of every healthcare dollar. The healthcare reform that's coming down the pike is a bid to essentially control, regulate, or spend the other 50 percent, eventually.

It seems odd that in every other aspect of our lives, opening up markets and choice and competition brings us better food, it brings us better automobiles, it opens up our lives in so many ways, but it would not work in healthcare.

Farley: There are many people who argue just that; that healthcare is fundamentally different from buying a car.

Gillespie: How much do you pay when you go to the doctor? How much does the doctor charge you for an in office visit?

Farley: Well, I rarely go to the doctor.

Gillespie: The point is that you don't know. Do you know how much you pay per month for healthcare?

Farley: Yes.

Gillespie: What does the company contribute?

Farley: I don't remember, but I know it's more. [Laughter]

Gillespie: On a basic level, the fact is that there's something wrong when you have an economic system of exchange, which healthcare is, and nobody in it seems to know what anything actually costs or what people charge. You know, prices are information. And if nobody knows what the price is, then we know we're not making the best choices possible, kind of by definition.

Welch: In terms of your example, Nick and I are both in favor of a welfare state for people who can't or have a difficult time taking care of themselves. The problem with the healthcare debate is that we're trying to fix the system for people who can take care of themselves, or limit their options, limit everybody's options. They're constricted in such a way that it actually makes it more difficult to take care of the people who really need to be taken care of, and that is the problem. I mean, my wife is French. I've written a column recently saying why I prefer French healthcare.

Gillespie: But you're also free riding on it.

Welch: Yes, I'm free riding on it a little bit, and I don't live in France. But my wife, who is not some big libertarian, won't live in France, because France is a really stultified, sclerotic society, in part because the state is just in everything. There's not a lot of dynamism in the state. So, there are these tradeoffs that we don't necessarily feel. But you could get to that system where we could help chronic patients, like your friend, because we recognize that as the purpose of the social safety net. But that's not the trajectory, necessarily, that we're going to. "Obamacare" moves in the direction of covering them, but then it just completely throws everybody else... It kicks people off their existing care. We're not breaking the link between employment and health insurance, which is a big problem.

Gillespie: Which is an artifact of an earlier era of government regulations, where there were wage and price controls put in during and after World War II. It made sense for employers. They couldn't raise your wages, so they started giving you healthcare, and it was exempt from those caps. But there's no reason why your employer should be your provider.

Welch: And there's no reason why my dad, who's retired and in his early 70s and who made a lot of money in his life, should go on Medicare at age 65 regardless of his ability to pay.

Gillespie: There's no reason why a 65-year-old should get free or reduced-price prescription drugs...

Farley: Well, hasn't Obama said that he's open to these kinds of changes in Medicare?

Gillespie: He hasn't, actually, because the Democrats, including Obama, are demagoguing the Republicans on Medicare, who are demagoguing the Democrats on Obamacare. [Laughter]

Welch: Obama took the idea of breaking the link between employer and health insurance off the table from the beginning. He said, "I'm open to everything, except don't do these fundamental things."

Gillespie: Here is a way of talking about it. Let's say we get rid of Medicare, or we get rid of subsidies for people who are middle class and upper middle class. And then we have the social safety net for healthcare, for retirement funding, for a guaranteed income for people who can't take care of themselves, or are below the poverty line. If we did that, we would get rid of so much money and activity on behalf of government, we could cut everybody's taxes. The people the government would be looking after would be such a smaller population that the government might be able to actually pay attention to them and help them, as opposed to subsidizing middle- and upper-middle-class people who don't need it, quite frankly.

And I would argue ? and I think most people would recognize this, because you can see it in eye care, you can see it in dental care, and in places where insurance doesn't cover things as well ? when people are paying their own money, or they're buying insurance with their own money, they make better choices that are better for them and the industries that they're going with. If you look at it over 30 or 40 years, the increase in eyeglass technology has been awesome. It's gotten cheaper and cheaper and better and better. And that's because there's a market in it. It's not an accident.

It's important to recognize that the modern healthcare system dates back to sometime around 1966 or so, when Medicare started. Obamacare is actually better understood not as a revolutionary new change, but as the latest step in a long, slow, effective government takeover of healthcare delivery. And I think that's troubling, whether you believe in government or not, because in general, it doesn't do a very good job of things.

Farley: But the current system without any changes is troubling, too. It's a disaster. Costs are soaring and millions of people have no care.

Gillespie: Yes, I agree. But costs are soaring for reasons that don't make sense.

Welch: I had a chip on my shoulder about healthcare, because I couldn't get it in America for a long time. I was healthy, but I was a freelancer. And it has bothered me ? and we've written about this a lot ? that the standard, boilerplate Republican response to healthcare is simply, "We have the best healthcare in the world; don't touch it."

Gillespie: And if you do, we'll say you're going to kill granny by fucking with Medicare.

Farley: Or, if you adopt a plan that was originally designed by Republicans, they're going to start screaming "Death Panels"!

Gillespie: Yes, though whoever proposes it, the individual mandate is a fascinating, philosophical question. Does the government have the right to dictate that you buy healthcare? Not that if you engage in an activity, you've got to play by our rules, but that the government is going to dictate that you engage in an activity, by buying healthcare.

The other thing that I'll say about it is that we don't have health insurance here, we have prepaid healthcare, which is also part of the problem. For example, your car insurance is manageable partly because you're not insuring it for regular maintenance. You're insuring it for catastrophic events. Health insurance doesn't work that way. It covers everything, and it's mandated by each state. They each have cartels that they run, and they set base levels of care. And so they say, "If you write an insurance policy in this state, you have to cover all of this stuff," which is a prepaid healthcare plan. As opposed to saying, "Look, you're on your own for doctor visits and antibiotics and stuff like that, but we will insure you against a catastrophic event," which is actually what insurance does, it gauges risk and then prices accordingly.

Farley: So, the theory would be that if you make health insurance more like car insurance, costs will go down because people will only go to the doctor when they need to?

Gillespie: Yes. But, also, that doctors will price their services in a way that is designed to actually attract people.

Farley: In the book you describe TARP and the stimulus as massive boondoggles that only increased the deficit. Many economists have insisted that without them, we would be in much worse shape than we are, that we'd be in a depression and not just a really terrible recession.

Gillespie: Well, first of all, there's a difference between TARP and the stimulus. Very briefly, the TARP bill was rushed through, literally over a long weekend. We were told on Friday afternoon by the Secretary of the Treasury, Hank Paulsen, and the leaders of the country, "If you do not pass this on Monday, that's it. It's game over." That was such a total lie.

Farley: How do you know that?

Gillespie: Because they voted down TARP, and the markets didn't crash. The markets actually went down after TARP was passed.

Farley: Do you think that they didn't believe what they were saying?

Gillespie: No. I think he believed it, but I think he's an idiot. It was stupid for the same reason it was stupid to push the Patriot Act immediately after 9/11. They just said, "Hey! If you're against this, you're a nihilist. Or, you're an Islamist." There's no reason to govern by panic, which has been the modus operandi in the 21st century, whether by Republicans or Democrats.

Farley: So, I'm assuming you'd say the same about the current debt ceiling debacle?

Gillespie: Yes, absolutely.

Farley: Most economists have been saying that raising the debt ceiling is incredibly important, yet you don't seem to agree. You seem almost blasé about it.

Gillespie: No, I'm not blasé, but it was a couple things, all of which Timothy Geithner...

You know, they used to say that Postmaster General is where you put the dummies. They seem to be putting them in the Treasury Department more recently. Geithner started out in January saying that we have to raise the debt ceiling well ahead of time, et cetera. He came around to the idea that reaching the debt limit was the equivalent of a default, which he backed away from. He backed away from his deadlines three or four or five times.

We've gone through a very big learning lesson here, which is that it is not the debt ceiling that matters. It's the debt load. And that's why S&P, Moody's, and all the bond rating agencies are saying, "Look, it's nice that you got an extension on your credit cards, but the real problem is you're spending too much relative to the size of your economy, and you're turning into a bad risk." That's what's important, and I think that's something that for a long time neither the Republicans nor the Democrats have wanted to face. They have to now, which is a good thing.

As for the stimulus, by every measure that the Obama Administration itself said, here is how you will know the stimulus worked, they were wrong. So, on their own judgment, they failed. And there is absolutely no reason to believe that stimulus spending works, and certainly not in the way that it was sold.

Farley: But, backing up a bit, if the central problem is the debt, why not make raising taxes part of the solution?

Welch: Look, I am not a tax fanatic one way or the other. I would be totally happy if we got rid of some loopholes. The mortgage interest tax deduction, for example. But we spent in this country 2 trillion dollars in 2000, 3 trillion dollars in 2008, and 4 trillion now, roughly. That's a lot of increases in a short period of time, and I don't think that we've gotten a commensurate increase in the quality of our services. On the state level, it became even more pronounced. Between 2002 and 2007, on average, states increased their spending by 80 percent, adjusted for inflation. Those were the good times. It wasn't like, "Oh! It's the Recession. We need a bail out." No, it was 2002 and 2007. We were doing great, and they just kept increasing spending.

Gillespie: Also, it's a stupid thing not taxing healthcare as compensation. It distorts the market in a very bad way. But Obama demagogued John McCain on this. The one-half idea that John McCain had was that your medical insurance should be taxed as compensation. And he was demagogued on that.

Welch: Yes. So, I don't think that the problem is a lack of taxation. We are spending more and more money and not getting anything for it, so let's try cutting the spending. Which, by the way, the debt ceiling agreement really does not do.