The Fatal Conceit Continues

Posted by Emily Ekins

President Barack Obama recently sat down with the Today Show’s Ann Curry to discuss jobs and private sector hiring.  Curry asked him why during a time of “record profits” for corporations they had only spent 2% more toward hiring new workers but 26% percent more on new equipment.

Obama explained how structural economic changes have shifted businesses toward using more equipment and technology, explaining how “businesses have learned to be more efficient with fewer workers” in response to the recession. He provided some examples: “You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

Much coverage of the interview falsely claimed that Obama blamed technology, or ATMs for high unemployment. This is simply untrue. He did not claim that technology is driving unemployment, but instead that employment is changing as technology increases the productivity of labor.

The interview did reveal that his alleged solution to the problem is more government control of the economy, administered by a panel of experts: “What we have to do now, and this is what the jobs council is all about, is identifying where the jobs for the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing in those places with the greatest opportunity.” This may sound good in theory, yet the question remains: how does he know where the jobs of the future are going to be, and how can he determine which job training will prove most valuable, and how can he know which areas have the greatest opportunity, and how can he know where to send capital?

It is not likely that the President’s Council on Jobs and Competitiveness, made up of about two dozen bright and capable business men and women, will have sufficient knowledge either to determine where capital should flow or where the future jobs will be, or what job training will be best rewarded. Private investors, risking their own capital, cannot consistently predict what markets will succeed or which technologies will flourish. How can we expect a council of political appointees wagering other people’s money to do any better?

Nobel laureate FA Hayek discussed the problems associated with central economic planning in his seminal American Economic Review article, “The Use of Knowledge in Society” and in his book The Fatal Conceit. Hayek argued that the economy is a very complex system, fueled by the knowledge and actions of millions of independent actors. Hayek warned that any plan to centrally control production would be doomed to inevitable failure because central planners lack sufficient information to ensure that supply equals demand in every market in the economy. The abysmal standard of living and collapse of the Soviet Union validated Hayek’s theory of the impossibility of planning something as complex as a country’s economy.

Clearly, Obama is not suggesting anything nearly as extreme as centrally planned production. Nevertheless, President Obama makes his assumptions clear in this interview that he believes this jobs council holds the capacity to gain sufficient knowledge to help guide capital investments and encourage job creation in the areas they identify. Instead of having our President and a few smart individuals making decisions with limited information, we could allow the market mechanism, made up of millions of individual decision markers, to transmit the information and knowledge necessary for market actors to guide capital appropriately.

For President Obama to assume that he and or his council have the knowledge sufficient to make these determinations is a fatal conceit.

Journalism and Generality

Posted by Jason Kuznicki

The media makes it hard for ordinary people to be libertarians. In large part, this is because journalism is in the business of selling panic—panic about terrorism, panic about drugs, panic about food, panic about pornography, panic about our health care system. If it’s not an emergency, it’s not news. To the lazy journalist, everything becomes an emergency—and emergencies always—always—demand state action.

The media makes things hard for the would-be libertarian in other ways, too. Consider this story from today’s Washington Post, about… well, it’s hard to say, actually:

Senate Democrats unveiled a plan Tuesday to save $21 billion over the next decade by eliminating tax breaks for the nation’s five biggest oil companies, a move designed to counter Republican demands to control the soaring national debt without new taxes.

With the proposal, Democrats sought to reframe the debate over debt reduction to include fresh revenue as well as sharp cuts in spending. For the first time, Democratic leaders suggested an equal split between spending cuts and new taxes — “50-50,” said Senate Majority Leader Harry M. Reid (Nev.).

That represents a larger share for taxes than has been proposed by either President Obama or the bipartisan commission he appointed to recommend how to cut the national debt.

So far, the Democratic tax agenda is focused on ending subsidies for big oil companies, a hugely popular proposal involving what Democrats see as a prime example of wasteful giveaways in the tax code. By raising the issue, Democrats are trying to force Republicans either to drop their rigid stance against new taxes or to defend taxpayer subsidies for some of the world’s most profitable corporations, including Ex­xon Mobil, Shell, BP, Chevron and ConocoPhillips.

The proposal came in response to remarks Tuesday by House Speaker John A. Boehner (R-Ohio), who said raising taxes is “off the table.” A day earlier, he gave a speech demanding more than $2 trillion in spending cuts in exchange for GOP support for an increase in the legal limit on government borrowing through the end of next year.

Where am I confused, you ask? On almost everything a libertarian ought to care about. I’ll explain.

One of the key aspects of any good law is generality—that is, equality before the law. As F. A. Hayek put it:

[T]hough government has to administer means which have been put at its disposal (including the services of all those whom it has hired to carry out its instructions), this does not mean that it should similarly administer the efforts of private citizens. What distinguishes a free from an unfree society is that in the former each individual has a recognized private sphere clearly distinct from the public sphere, and the private individual cannot be ordered about but is expected to obey only the rules which are equally applicable to all….

The general, abstract rules, which are laws in the substantive sense, are… essentially long-term measures, referring to yet unnkown cases and containing no references to particular persons, places, or objects. Such laws must always be prospective, never retrospective, in their effect (The Constitution of Liberty, chapter 14, section 2).

Now, with every passing day our government stomps all over this generality requirement again and again, chiefly in the economic sphere. But is it doing so on the front page of today’s Washington Post? That’s a good question.

Read the rest of this post »

Clinton, Obama, and Hayek

Posted by David Boaz

President Obama has been saying that if the United States government can find and eliminate Osama bin Laden after ten years of searching, it can do anything:

Already, in several appearances since the raid, Obama has described it as a reminder that “as a nation there is nothing that we can’t do,” as he put it during an unrelated White House ceremony Monday. On Sunday night, during his first comments about the operation, he linked it to American values, saying the country is “once again reminded that America can do whatever we set our mind to.”

This is, of course, nonsense. Finding bin Laden, difficult as it proved to be, was an incomparably simple task compared to using coercion and central planning to bring about desired results in defiance of economic reality. You can’t deliver better health care to more people for less money by reducing the role of incentives and markets, even if you set your mind to it. As Russell Roberts said about a similar concept, “If we can put a man on the moon, then…”:

Putting a man on the moon is an engineering problem. It yields to a sufficient application of reason and resources. Eliminating poverty is an economic problem (and by the word “economic” I do not mean financial or related to money), a challenge that involves emergent results. In such a setting, money alone—in the amounts that a non-economic approach might suggest, one that ignores the impact of incentives and markets—is unlikely to be successful.

Obama should listen to Bill Clinton, who last fall seemed to be channeling Hayek:

Friedrich Hayek, The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Bill Clinton, 9/21: “Do you know how many political and economic decisions are made in this world by people who don’t know what in the living daylights they are talking about?”

Look Who’s Back. Keynes and Hayek.

Posted by Caleb O. Brown

Keynes and Hayek are at it again in this new video from EconStories.tv.

According to the National Bureau of Economic Research, the Great Recession ended almost two years ago, in the summer of 2009. Yet we’re all uneasy. Job growth has been disappointing. The recovery seems fragile. Where should we head from here? Is that question even meaningful? Can the government steer the economy or have past attempts helped create the mess we’re still in?

The video was produced by Russ Roberts, advisor to the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, and John Papola for EconStories.tv. I could be mistaken, but I believe that’s Duke professor Michael Munger as the bumbling security guard.

Inside Every Leftist Is a Little Authoritarian Dying to Get Out

Posted by Michael F. Cannon

I’ve been meaning to write about how ObamaCare’s unelected rationing board — innocuously titled the Independent Payment Advisory Board — is yet another example of the Left leading America down the road to serfdom.  (Efforts to limit political speech — innocuously called “campaign finance reform” — are another.)

As Friedrich Hayek explained in The Road to Serfdom (1944), when democracies allow government to direct economic activity, the inevitable failures lead to calls for a more authoritarian form of governance:

Parliaments come to be regarded as ineffective “talking shops,” unable or incompetent to carry out the tasks for which they have been chosen. The conviction grows that if efficient planning is to be done, the direction must be taken “out of politics” and placed in the hands of experts — permanent officials or independent autonomous bodies.

The problem is well known to socialists.  It will soon be half a century since the Webbs began to complain of “the increased incapacity of the House of Commons to cope with its work.”

Sound familiar?  National Review‘s Rich Lowry picks up on the theme here.

Making this connection got a lot easier the other day when the University of Chicago’s Harold Pollack, a leading advocate of a “public option,” vented his frustrations over at The American Prospect blog about how Congress is likely to defang the Independent Payment Advisory Board. And he ends up just where Hayek predicted:

Despite many reasons for caution — the words George W. Bush foremost among them — I’m becoming more of a believer in an imperial presidency in domestic policy. Congress seems too screwed up and fragmented to address our most pressing problems.

This isn’t how it starts. This is how it snowballs.

Paging Dr. Hayek…

Is Libertarianism Selfishness?

Posted by David Boaz

That’s what Michael Gerson, former speechwriter for President George W. Bush, writes in the Washington Post. I take a different view in my new column at the Encyclopedia Britannica Blog:

Libertarians want to live in what Adam Smith called the Great Society, the complex and productive society made possible by social interaction. We agree with George Soros that “cooperation is as much a part of the system as competition.” In fact, we consider cooperation so essential to human flourishing that we don’t just want to talk about it; we want to create social institutions that make it possible. That is what property rights, limited government, and the rule of law are all about….

The American, and libertarian, belief in freedom is not a “mania,” nor is it “selfishness.” It’s a philosophy of individual rights, the rule of law, and the institutions necessary for social cooperation. Read Locke, Hume, Smith, Tocqueville, Hayek—and yes, Rand—if you seriously believe that the philosophy of freedom can be summed up as “selfishness.”

Much more at the Britannica.

Saving Hayek from the People Who Think They’re Saving Hayek

Posted by Jason Kuznicki

I’ve been noticing a game lately played in the bookish corners of the left side of American politics. We’ll call it “We Know Hayek Better Than You.” It’s a game not without some attendant dangers. But it’s nothing if not fun.

Writing at Ezra Klein’s spot in the Washington Post, Karl Smith quotes Friedrich Hayek as follows:

That the ideal of justice of most socialists would be satisfied if merely private income from property were abolished and the differences between the earned incomes of different people remained what they are now, is true. What these people forget is that in transferring all property in the means of production to the state they put the state in a position whereby its action must in effect decide all other incomes.

He glosses:

That is, as Hayek goes on to explain, there is nothing fundamentally wrong with communal ownership of the means of production. The mistake is to think that the government could facilitate such ownership because then the government is effectively a monopolist and that would give the government almost unlimited power.

The idea that in principle it would be okay to completely redistribute all capital wealth is far to the left of anything proposed in modern America.

I hate to say it, but this is quite the dog’s breakfast of confusion, misinterpretation, and strained reading. One ought to be suspicious when your author writes an entire book entitled The Mirage of Social Justice. Perhaps he’s not really too enthused about social justice, you know.

Although it’s probably true that most socialists‘ idea of justice would be satisfied if income from private property were abolished, it does not follow that this was Hayek’s idea of justice. Hayek didn’t think it was “okay” to collectivize the entire means of production, whether by the state or by private action.

The ability to accumulate capital and to believe that one held it justly was, for Hayek, a most important incentive for the formation of responsible individuals. If the means of production were collectivized, individual character would suffer, and society would suffer with it. He wrote:

A free society will not function or maintain itself unless its members regard it as right that each individual occupy the position that results from his action and accept it as due to his own action. Though it can offer to the individual only chances and though the outcome of his efforts will depend on innumerable accidents, it forcefully directs his attention to those circumstances that he can control as if they were the only ones that mattered (The Constitution of Liberty, Chicago: University of Chicago Press, 1978, p. 78).

The sense of responsibility has been weakened in modern times as much by overextending the range of an individual’s responsibilities as by exculpating him from the actual consequences of his actions… To be effective, responsibility must be both definite and limited, adapted both emotionally and intellectually to human capacities. It is quite as destructive of any sense of responsibility to be taught that one is responsible for everything as to be taught that one cannot be held responsible for anything…

Responsibility, to be effective, must be individual responsibility. In a free society there cannot be any collective responsibility of the members of a group as such, unless they have, by concerted action, all made themselves individually and severally responsible… If the same concerns are made the responsibility of many without at the same time imposing a duty of joint and agreed action, the result is usually that nobody really accepts responsibility. As everybody’s property in effect is nobody’s property, so everybody’s responsibility is nobody’s responsibility (ibid., p 83).

So no, Hayek wouldn’t have thought it was a good idea to collectivize the means of production. There are some interesting theoretical questions hereabouts regarding corporations, their appropriate size, responsibilities, and attendant knowledge problems, but I suspect that my friends on the left aren’t actually pining for one megacorporation to rule them all. (Are they? I know it can be tough to keep up, but really, this is too much. Even I don’t support that.)

Hayek tells us we have private property and private capital because it does good things to the individual character. While there will be accidents, and while life is sometimes truly unfair, the best course of action is nonetheless for everyone to work as though their efforts actually mattered. And the best way to ensure that they will do so is to allow their efforts, whenever possible, to matter.

And when individual initiative has failed, what did Hayek want then? He wanted a modest system of social insurance — with emphasis on the modesty. After that, he wanted very stern incentives for people to get back up on their feet and leave that system.

One incentive that he considered at least reasonable was to forbid welfare recipients (and government workers!) from voting — an idea far to the right of anything now being considered in America. But not a bad idea in the abstract. He wrote:

It is also possible for reasonable people to argue that the ideals of democracy would be better served if, say, all the servants of government or all recipients of public charity were excluded from the vote (ibid., 105).

I look forward to my friends on the left continuing to deepen their knowledge of Hayek, and maybe entertaining this modest proposal. Were it not for my overwhelming concerns about how our current welfare system entraps its recipients, I might even support it myself.

Good Point

Posted by David Boaz

In his recent book Ill Fares the Land, a passionate defense of the democratic socialist ideal, the historian Tony Judt writes that Hayek would have been (justly) doomed to obscurity if not for the financial difficulty experienced by the welfare state, which was exploited by conservatives like Margaret Thatcher and Ronald Reagan.

Yes, if Hayek had been wrong about the viability of the welfare state, then his warnings would have had less resonance.

This line appears in a generally thoughtful treatment of how The Road to Serfdom has stayed in print for decades and become a bestseller in the past two years. The article by Jennifer Schuessler appeared in the New York Times Book Review last July, but has only just come to my attention.

Dusty Bookshelves and Long-Dead Writers

Posted by David Boaz

New York Times reporter Kate Zernike generated a lot of spit-takes in the blogosphere when she wrote on October 2 about how Tea Party activists are reading “once-obscure texts by dead writers“:

The Tea Party is a thoroughly modern movement, organizing on Twitter and Facebook to become the most dynamic force of the midterm elections.

But when it comes to ideology, it has reached back to dusty bookshelves for long-dormant ideas.

It has resurrected once-obscure texts by dead writers — in some cases elevating them to best-seller status — to form a kind of Tea Party canon. Recommended by Tea Party icons like Ron Paul and Glenn Beck, the texts are being quoted everywhere from protest signs to Republican Party platforms.

Pamphlets in the Tea Party bid for a Second American Revolution, the works include Frédéric Bastiat’s “The Law,” published in 1850, which proclaimed that taxing people to pay for schools or roads was government-sanctioned theft, and Friedrich Hayek’s “Road to Serfdom” (1944), which argued that a government that intervened in the economy would inevitably intervene in every aspect of its citizens’ lives.

So that’s, you know, “long-dormant ideas” like those of F. A. Hayek, the winner of the Nobel Prize in Economics, who met with President Reagan at the White House, whose book The Constitution of Liberty was declared by Margaret Thatcher “This is what we believe,” who was described by Milton Friedman as “the most important social thinker of the 20th century” and by White House economic adviser Lawrence H. Summers as the author of “the single most important thing to learn from an economics course today,” who is the hero of The Commanding Heights, the book and PBS series by Daniel Yergin and Joseph Stanislaw, and whose book The Road to Serfdom has never gone out of print and has sold 100,000 copies this year.

So that’s Kate Zernike’s idea of an obscure, long-dormant thinker.

Meanwhile, over the next few weeks after that article ran, the following headlines appeared in the New York Times:

Apparently the Times isn’t always opposed to looking in the dusty books of long-dead writers. By the way, Keynes died in 1946, Hayek in 1992.

Bill Clinton Channels Friedrich Hayek

Posted by David Boaz

From Greg Mankiw:

Friedrich Hayek, The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Bill Clinton, 9/21: “Do you know how many political and economic decisions are made in this world by people who don’t know what in the living daylights they are talking about?”

Regulation and the Knowledge Problem

Posted by David Boaz

Glenn Reynolds, a law professor at the University of Tennessee but better known as Instapundit, writes in the Washington Examiner that the controversy over big corporations’ reporting the impact of the new health care legislation on their tax bills illustrates the “Knowledge Problem” identified by Nobel laureate F. A. Hayek in “The Use of Knowledge in Society” and other writings. Hayek pointed out that the information needed to run an economy doesn’t exist in any one database or agency. It is scattered among millions of people and made available to others by means of the price system. Planning and regulation do away with the information embodied in prices and try to improve on market outcomes by making use of far less information.

Reynolds writes, “Recent events suggest that it’s not just the economy that regulators don’t understand well enough — it’s also their own regulations.”

The Hayek Boom

Posted by David Boaz

Bruce Caldwell, editor of The Collected Works of F. A. Hayek and Director of the Center for the History of Political Economy at Duke University, writes in today’s Washington Post about the booming interest in Hayek:

Friedrich Hayek, Nobel-prize winning economist and well-known proponent of free markets, is having a big month. He was last seen rap-debating with John Maynard Keynes in the viral video above, (in which Hayek is portrayed as the sober voice of reason while Keynes overindulges at a party at the Fed). His 1944 book, “The Road to Serfdom,” provided the theme for John Stossel’s Fox Business News program on Valentine’s Day.

Hayek, who died in 1992, is also reemerging as a bestselling author. A new edition of Hayek’s seminal book, “The Road to Serfdom,” was published in March 2007 by the University of Chicago Press as part of a series called “The Collected Works of F. A. Hayek,” for which I serve as editor. For over a year-and-a-half, the book sold respectably, at a clip of about 600 copies a month.

But then, in November 2008, sales more than quadrupled, and they haven’t slowed down since. What’s more, the Kindle edition went on sale in late May 2009 and is now the best-selling book that the University of Chicago Press has offered in that format.

I reported on the rising sales of The Road to Serfdom last July. I argued that a Wall Street Journal op-ed by Dick Armey had sent sales jumping in February. Caldwell has a slightly different answer. After noting the general concern about President Obama’s big-government program and the talk about socialized medicine, he writes:

But perhaps the biggest stimulus to sales was, well, the stimulus package. The macroeconomic analyses of John Maynard Keynes had gone quickly out of vogue in the 1970s, when a decade of stagflation delivered a death blow to the notion of Keynesian fine-tuning of the economy. But in early 2009, people were talking about Keynes again, and indeed the fiscal stimulus package, to the extent that it had a theoretical underpinning, would find one in Keynesian economics….

Because Keynes and Hayek actually did have a great debate over their rival theoretical models of a monetary economy in the early 1930s, just as the Slump of 1930 was turning into the Great Depression, it seemed natural for opponents of these policies to turn to Hayek’s writings. (For those who are interested in this episode, I recommend a perusal of volume 9 of The Collected Works, Contra Keynes and Cambridge.)

Not only is “The Road to Serfdom” still relevant in our own time, it has something else going for it, too. It is actually readable. Anyone who has tried to master Keynes’s “General Theory,” or for that matter Hayek’s rival title “Prices and Production,” will find the going pretty tough.

Not so for “The Road to Serfdom,” a book that was condensed by Reader’s Digest in April 1945, just as the war in Europe was ending. Plus, “The Road to Serfdom” is, simply put, a great, evocative title. And with 10 percent unemployment, people certainly have more time to read it.

In the end, however, I think that the underlying reason for the sustained interest in Hayek’s book is that it taps into a profound dissatisfaction in the public mind with the machinations of its government. Both Presidents Bush and Obama have presided over huge growth in the size of the federal government and in the size of the federal deficit, with little obvious effect on unemployment. Things seem out of control.

Whether it was the financial crisis, the stimulus package, Dick Armey’s endorsement, or general fears about the growth of government, I’m glad to see people rediscovering F. A. Hayek. His ideas are a good foundation for a coherent and consistent response to the collectivist resurgence that now seems to be on the defensive.