Blog on the Run: Reloaded

Monday, August 11, 2014 7:45 pm

Dr. Jekyll and Mr. Hayek

I read Friedrich A. von Hayek’s “The Road to Serfdom” several years ago, and although it wasn’t a total waste, I couldn’t understand how a guy whose thinking was so obviously messed up in some ways could be held in such high regard. It turns out that I was missing a whole bunch of backstory (an entire book’s worth, at least), as Robert Solow explained two whole years ago (h/t Brad DeLong for unearthing this), while I was in grad school and not reading much of anything not school-related:

The source of confusion here is that there was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge in the economy (and in the rest of society). Since knowledge—about technological possibilities, about citizens’ preferences, about the interconnections of these, about still more—is inevitably and thoroughly decentralized, the centralization of decisions is bound to generate errors and then fail to correct them. The consequences for society can be calamitous, as the history of central planning confirms. That is where markets come in. All economists know that a system of competitive markets is a remarkably efficient way to aggregate all that knowledge while preserving decentralization.

But the Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long. Half of Angus Burgin’s book is about the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better and meet his standards for a liberal society. (Hayek and his friends were never able to settle on a name for this kind of society: “liberal” in the European tradition was associated with bad old Manchester liberalism, and neither “neo-liberal” nor “libertarian” seemed to be satisfactory.)

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book. Leaving aside the irrelevant extremes, or even including them, it would be perverse to read the history, as of 1944 or as of now, as suggesting that the standard regulatory interventions in the economy have any inherent tendency to snowball into “serfdom.” The correlations often run the other way. Sixty-five years later, Hayek’s implicit prediction is a failure, rather like Marx’s forecast of the coming “immiserization of the working class.”

So, basically, conservatives are reading Hayek the same way they read the Bible, which is to say selectively. Hayek imposed some limits and context on some of his ideas, just as Jesus imposed the same on the Law and the Prophets, and conservatives conveniently overlook them in both cases. Moreover, Hayek, not being divine and all, fell prey to overreach, as intellectuals of all political stripes have done throughout history, and conservatives have been unable or unwilling to recognize that when it happened.

It has become an article of faith among some progressives that Hayek, like Milton Friedman after him, is the enemy. I think it’s not quite that bad: Both men had both good and bad ideas; both men had ideas that would benefit the less-well-off (guaranteed basic income from Hayek; negative income tax, which amounts to almost the same thing, from Friedman) as well as some that would turn the economy radioactive. I think it’s only fair to treat the work of both with a combination of openness and skepticism: openness to that which already has been demonstrated to work, or that might work to the benefit of the poor; skepticism toward that which already has been shown not to work or that appears likely to harm the poor. I defer to economic experts as to how much of each constitutes each man’s oeurve while reserving the right to call BS on stuff I already know from experience is BS.


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