Tag: Hayek

Hayek: The Market and Other Orders

Volume 15 of the Collected Works of F. A. Hayek has just been published by the University of Chicago Press. This volume, edited by series editor and Hayek biographer Bruce Caldwell, is The Market and Other Orders. It contains many of Hayek’s most important papers:

  • The Use of Knowledge in Society
  • The Meaning of Competition
  • The Results of Human Action but Not of Human Design
  • Competition as a Discovery Procedure
  • The Pretence of Knowledge, his Nobel Prize lecture
  • and The Political Ideal of the Rule of Law, lectures delivered in Egypt in 1954-55 that served as early drafts of chapters 11, 12, 13, 14, and 16 of The Constitution of Liberty

That’s only the beginning in this impressive volume, which should be of interest to any Hayek scholar, and indeed any student of economics or complex social orders.

Lawrence Summers, former secretary of the Treasury and president of Harvard, said in an interview for The Commanding Heights, Daniel Yergin and Joseph Stanislaw’s 1998 study of the resurgence of economic liberalism,

What’s the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy.

This volume is a great introduction to those key ideas.


Hayek v. Krugman – Cyprus’ Capital Controls

Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling.

Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.

Prof. Krugman then takes a characteristic whack at all those “ideologues” who might dare to question the desirability of capital controls:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

Fine. But, not once did Prof. Krugman mention that there just might be a significant cost associated with the imposition of capital controls – a cost with which Prof. Krugman is surely familiar.

Before more politicians fall under the spell of capital controls, they should take note of what another Nobelist, Friedrich Hayek, had to say in his 1944 classic, The Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

When it comes to capital controls, I think the Cypriots – even the non-ideologues – might be inclined to agree with Hayek over Krugman.

A Perfect Holiday Album for the Keynesians on Your Christmas List

I’m understandably partial to my video debunking Keynesian economics, and I think this Econ 101 video from the Center for Freedom and Prosperity does a great job of showing why consumer spending is a consequence of growth, not the driver.

But for entertainment value, this very funny video from EconStories.tv puts them to shame while also making important points about what causes economic growth.

The video was produced by John Papola, who was one of the creators of the famous Hayek v Keynes rap video, as well as its equally clever sequel.

IPAB: Yes, It Can

In today’s Washington Post, columnist Bob Samuelson writes:

Then there’s the Independent Payment Advisory Board (IPAB), a body of 15 experts charged with limiting Medicare spending if it passes certain targets. But the law handcuffs IPAB. It can’t increase patient cost-sharing, restrict benefits, modify eligibility requirements or — in any one year — cut spending by more than 1.5 percent, reports the Kaiser Family Foundation.

All four of those assertions about supposed limitations on IPAB’s powers are false, as Diane Cohen and I explain here.

Why the Worst Get on Top

Susan Stamberg reports on Martha Gellhorn, “one of the first great female war correspondents,” whose marriage to Ernest Hemingway is being dramatized by HBO next week. Gellhorn had a healthy skepticism toward power:

In 1983, a British TV interviewer posed this loaded question to Gellhorn, then 75 and still gorgeous: “I.F. Stone once described governments as comprised entirely of liars and nothing they say should ever be believed.”

The response was a typical no-holds-barred Gellhorn opinion: “Quite right. And Tolstoy once said governments are a collection of men who do violence to the rest of us. Between Izzy Stone and Tolstoy, you’ve got it about right.”

The title of this post is of course a chapter title from Hayek’s The Road to Serfdom.


The Fatal Conceit Continues

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

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.

I can think of lots of ways we might deny a tax break to a certain five oil corporations. Some are decidedly better than others in their generality. Consider the following, ranked from least general to most:

  1. “The corporations known as Ex­xon Mobil, Shell, BP, Chevron and ConocoPhillips are hereby denied tax break X. All others still qualify, or not, as they did before.”
  2. “Oil corporations with an annual revenue above $198 billion are denied tax break X.”
  3. “We find that tax break X itself is lacking in generality. It is hereby repealed, and the overall corporate tax rate is increased accordingly.”

Which one are they proposing? From the story’s first paragraph, we could easily conclude that it was (1). Many people on the left would be happy with (1), because big corporations are anathema to them, and everything they do is evil, and punishing them—generality be damned—is just great.

But then, it could also be (2), and this measure is somewhat more general, even if ConocoPhillips—the smallest company on the list—just so happens to have an annual revenue of $198.655 billion. As Hayek noted, “[C]lassification in abstract terms can always be carried to the point at which, in fact, the class singled out consists only of particular known persons or even a single individual” (ibid., section 4). Hypocrisy is the tribute vice pays to virtue.

And finally, there’s (3), clearly the winner in terms of generality. Is that in fact the proposal being discussed by members of Congress? Or is it still more general than that—something perhaps as described by my colleagues Jerry Taylor and Peter Van Doren earlier this month?

Last week President Barack Obama responded to rising public anger over soaring gasoline prices by banging the drums for the elimination of various tax breaks enjoyed by the oil and gas industry…

[L]et the record show that President Obama is right… about these tax breaks. They make the economy less — not more — efficient and do nothing to reduce prices at the pump.

Rigging the tax code to make investments in manufacturing artificially more attractive than investments in something else is an enterprise designed to harm non-manufacturers for the benefit of … manufacturers. Conservatives who want government to leave markets alone have no business throwing their political bodies in front of this tax break. If their political rhetoric means anything, they would see the president’s bid and raise him by calling for total repeal of this tax break for everyone, not just for oil and gas companies.

If only we were so lucky! Getting back to the Post, we learn much later in the story—in the fifteenth paragraph —that the congressional proposal “would close several long-standing tax loopholes, yielding roughly $2 billion a year in savings to be applied to lowering the deficit. It would affect only the five largest oil companies, excluding smaller producers.”

This is confusing to the point of deception. Does it really “close” a loophole to take a few entities and exclude them from the prior exclusion from the tax? By my understanding, it makes the law less general, more convoluted and more arbitrary, than it was before. Close the loophole—or just don’t close it, I think a Hayek might say. Don’t make companies play human Tetris to figure out whether they aren’t not un-disincluded.

One day I think people will look back on our era—from roughly the civil rights movement to the present—and marvel. They will be amazed at how, while the law grew much more general regarding many non-economic matters, it became increasingly partial and favoritist when it came to running a business. At times our journalism and even our language seemed blind to this contradictory development, which only encouraged it. Even thinking about the generality of our laws is made difficult when it’s just not a topic on the national media’s radar.

But equality before the law should apply, well, equally. Shouldn’t it?