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.


Thursday, January 16, 2014 7:18 pm

You keep using that word. It does not mean what you think it means.

And speaking of invaluable economist Dean Baker, he schools NPR, not that they’ll pay any attention:

This adjective [“enormous” — Lex] appeared in a top of the hour news piece (sorry, no link [this NPR blog post uses the adjective “massive” — Lex] referring to the spending bill approved by Congress on Wednesday evening. It would be interesting to know how it made this assessment. While the government spends more money each year than any of its listeners will see in their lifetime, it spends less relative to the size of its economy than almost any other wealthy country. It is also spending less relative to the size of the economy than it did in the years 2009-2012. The domestic discretionary portion of the budget, which was close to half of the spending bill, is smaller relative to the size of the economy than it has been in decades.

It’s a simple point, but one journalists at even the biggest outlets in the business can’t seem to learn: a number is meaningless — or, worse, misleading — absent context. I bolded the last part because although I want to shout this in all upper-case letters, I have chosen merely to emphasize it instead.

Friday, July 26, 2013 6:19 pm

Our overburdened corporations

The Washington Post had a chart on how corporate taxes have been rising as a share of GDP in OECD countries (industrialized countries comparable for economic purposes to the United States). The problem is that the piece was a tad misleading in that every country counted the same.

In the U.S. that burden has been generally shrinking since World War II. As of 2009, that burden was 1%, down from its postwar high of 6% just after the Korean War. Here’s a chart showing how it’s gone:

Corporate Income Tax as a Share of GDP 1946 - 2009

Now, corporations are sitting on $2 trillion in cash. If they’re not going to create jobs with it, which they’re not because there’s no demand for their goods and services because too many people have been unemployed for too long, then they ought to pay a bit more of it to the government so that we can set about some badly needed infrastructure projects. Those projects, in turn, will both create jobs in the short term and lay the foundation for future wealth creation in the long term.

This is not rocket science. This is not even rocket economics.

(h/t: Dean Baker)

Friday, June 24, 2011 8:00 pm

Resources for the reality-based community

Filed under: Reality: It works — Lex @ 8:00 pm
Tags: ,

After 20 years of arguing online for a reality-based approach to public policy, I’ve pretty much decided that the time during which such a thing would happen has long since passed and, in the post-Citizens United era, will not  come in my lifetime. So I’ve pretty much stopped arguing for/about that and moved on to other things, to the extent that I still argue at all (as opposed to just pointing at weird things and saying, “Look! Weird!”).

But not everyone has. I’m grateful for that. And if you’re still doing that kind of arguing and want resources, you could do much worse than to track economist J. Bradford DeLong’s series of blog posts, “For the Virtual Green Room: Rebuttals to right-wing talking-points misinformation that I want to have at the forefront of my brain” (examples here and here). Unlike most of the talking heads who actually get face time on cable news and space in the country’s most influential op-ed sections, DeLong, like Dean Baker and the better-known Paul Krugman, has been sadly correct in most of his assessments and predictions during the past few years. If he had been making economic policy for the country since January 2009 we would be in much better shape.

Monday, April 19, 2010 8:30 pm

Markets: About as rational as Charles Manson

Filed under: I want my money back. — Lex @ 8:30 pm
Tags: ,

Nobel laureate Joseph Stiglitz:

The notion economists pushed – that markets are efficient and self-adjusting – gave comfort to regulators like Alan Greenspan, who didn’t believe in regulation in the first place. They provided support for the movement which stripped away the regulations that had provided the basis of financial stability in the decades after the Great Depression; and they gave justification to those, like Larry Summers and Robert Rubin, Treasury secretaries under Clinton, who opposed doing anything about derivatives, even after the dangers had been exposed in the Long-Term Capital Management crisis of 1998.

We should be clear about this: economic theory never provided much support for these free-market views. Theories of imperfect and asymmetric information in markets had undermined every one of the ‘efficient market’ doctrines, even before they became fashionable in the Reagan-Thatcher era. Bruce Greenwald and I had explained that Adam Smith’s hand was not in fact invisible: it wasn’t there. Sanford Grossman and I had explained that if markets were as efficient in transmitting information as the free marketeers claimed, no one would have any incentive to gather and process it. Free marketeers, and the special interests that benefited from their doctrines, paid little attention to these inconvenient truths.

So if markets aren’t going to be rational, then we need to be. That means rationally setting rules, boundaries and level playing fields. And, yes, in some instances that means government will need to step in.

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