Tag: Hayek

Bill Clinton Channels Friedrich Hayek

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

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

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.

Weekend Links

  • Health care insurance mandates: Why it is unconstitutional for the government to force you to purchase a product you don’t want to buy.
  • The end of globalization? Cato’s trade policy expert Daniel Griswold debates.
  • Doug Bandow on the minaret ban in Switzerland: “Swiss voters underestimated the impact on religious liberty when they voted to ban minaret construction. But Muslims whose nations persecute Christians, Jews, and other religious minorities have no standing to complain. The Islamic world needs to respect religious liberty at home before lecturing the West about intolerance, racism, hatred and Islamophobia.”

Tuesday Links

  • Why the Supreme Court should strike down the Public Company Accounting Oversight Board: “Imagine a government agency with the authority to create and enforce laws, prosecute and adjudicate violations, and impose criminal penalties. Then throw in the power to levy taxes to pay for all the above. And for good measure, make the agency independent of political oversight.”

Taking Over Everything

“My critics say that I’m taking over every sector of the economy,” President Obama sighed to George Stephanopoulos during his Sunday media blitz.

Not every sector. Just

This president and his Ivy League advisers believe that they know how an economy should develop better than hundreds of millions of market participants spending their own money every day. That is what F. A. Hayek called the “fatal conceit,” the idea that smart people can design a real economy on the basis of their abstract ideas.

This is not quite socialism. In most of these cases, President Obama doesn’t propose to actually nationalize the means of production. (In the case of the automobile companies, he clearly did.) He just wants to use government money and government regulations to extend political control over all these sectors of the economy. And the more political control achieves, the more we can expect political favoritism, corruption, uneconomic decisions, and slower economic growth.

Why Chile Is More Economically Free Than the United States

42-16335429In the 2009 Economic Freedom of the World Report, Chile is now #5, one place ahead of the United States.

In 1975, of 72 countries, Chile was No 71. How did this happen? The explanation lies in what I call the “Chilean Revolution,” because it was as important and transformative to my country as the celebrated American Revolution that gave birth to the United States.

The exceptional political circumstances of this period have obscured the fact that from 1975 to 1989 a true revolution took place in Chile, involving a radical, comprehensive, and sustained move toward economic and political freedom (from a starting point where there was neither one nor the other). This revolution not only doubled Chile’s historic rate of economic growth (to an average of 7% a year, 84-98),  drastically reduced poverty (from 45% to 15%), and introduced several radical libertarian reforms that set the country on a path toward rapid development; but it also brought democracy, restored limited government, and established the rule of law.

In 1998, The Los Angeles Times described the importance of the Chilean Revolution to the world:

In a sense, it all began in Chile. In the early 1970s, Chile was one of the first economies in the developing world to test such concepts as deregulation of industries, privatization of state companies, freeing of prices from government control, and opening of the home market to imports. In 1981, Chile privatized its social-security system. Many of those ideas ultimately spread throughout Latin America and to the rest of the world. They are behind the reformation of Eastern Europe and the states of the former Soviet Union today… which demonstrates, once again, the awesome power of ideas.

The role and achievements of Chile’s team of classical liberal economists is well known. They were the ones who in 1975, once the quasi-civil war was over, decided to carry out a principled, “friendly takeover” of the military government that had arisen from the breakdown of democracy in 1973 (here is my essay, published in “Society”, on that drama). Much less well-known, however, is that they were also the foremost proponents of a gradual and constitutional return to a limited democracy.

In fact, on August 8, 1980, a new Constitution, containing both a bill of rights and a timeline for the restoration of full political freedom, was proposed and approved in a referendum. In the period 1981-1989, what Fareed Zakaria has called the “institutions of liberty” were created—an  independent Central Bank, a Constitutional Court, private television and universities, voting registration laws, etc—since they were crucial for having not only elections but a democracy at the service of freedom. Then on March 11, 1990, an extraordinary event happened: the governing military Junta surrendered its power to a democratically elected government in strict accordance to the 1980 Constitution (here is my note on the restoration of democracy in Chile).

Since 1990, Chile has had four moderate center-left governments and, despite minor setbacks on tax, labor and regulation policies, the essence of the free-market reforms are still intact. The 1980 Constitution is the law of the land, and has been amended by consensual agreements among all parties represented in Congress. Not only is Chile now at the top of rankings on free trade (number 3 in the world after Hong Kong and Singapore) and transparency (less corruption that in most western European countries), but it is expected to be a developed country by 2018, the first in Latin America.

Nobel Laureate Friedrich Hayek proved, again, to have been a visionary when he stated in 1981: “Chile is now a great success. The world shall come to regard the recovery of Chile as one of the great economic miracles of our time.”