South Carolina’s Pension Fund? Don’t Ask a Libertarian. Don’t Tell a Libertarian.

The simplistic but enduring version of the Republican or libertarian economic worldview tends to evoke thinkers whose best work was done in the early-to-mid-20 th century—like F.A. Hayek and Ayn Rand . That was also a time when the distinction between the public (libertarians say BAD!) and private (libertarians say GOOD!) economy was a line that would be clear to most people with a junior-high-school education.

How, though, does anyone today draw that line? Consider this story in Tuesday’s New York Times : The state of South Carolina has decided to start its own company to oversee how the state pension fund invests its money. The difficulty in recent years, you see, has been that what we commonly understand as “private equity” and “venture capital” funds—the cutting edge of the nonpublic economic sector—often gets all or most of its capital from public entities like state pension funds (with South Carolina’s being by no means the largest). So: Taxpayer money gets invested into private firms, by private firms, expected to produce an outsized return that benefits all.

But lately that model has failed. Why? Well, there’s the overall implosion of the economy. But viewed more closely, it looks like the risk-taking, Ayn Randian financiers found a little detour in the road away from serfdom: Knowing they were going to lose money in their investments, they decided to lock in revenue by charging oversized fees. That makes them look an awful lot like rent seekers , a species that libertarians tend to associate with the state. South Carolina is now breaking away from the mad shackles of the private sector and stepping out on its own—fees be damned. A blow for freedom! Freedom for, um, the state!

So, to put it in simple terms: The state now has to create a taxpayer-funded entity that will use private-sector criteria to second-guess the private sector venture capitalists—who use state money to make their investments—because of their failure to live up to market standards, and their lapse into nonproductive economic behavior associated with the state. Got that, Mr. Hayek?