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.”Lars P. Syll's Blog
Good Hayek vs. Bad Hayek
Excerpt from Robert M. Solow
Read the whole review, Hayek, Friedman, and the Illusions of Conservative Economics, at The New Republic.
Not only does Hayek not make the cut in today's GOP, neither do Nixon or Reagan. And even Barry Goldwater rejected this level of extremism.
Robert Solow is brilliant in this article. Its final paragraph defines what is needed these days: policy pragmatism:
ReplyDelete"Everyone has known for a long time that a complicated industrial economy is either a market economy or a mess. The real issues are pragmatic. Which of the defects of a “free,” unregulated economy should be repaired by regulation, subsidization, or taxation? Which of them may have to be tolerated (and perhaps compensated), at least in part, because the best available fix would have even more costly side-effects? To the extent that the MPS circle made that kind of policy discussion more difficult to have, it did the market economy a disservice."
We do not have "a market economy." That is a fiction for institutional reasons, notably government policy, which is necessary for a modern state, as well as international institutions developing with globalization.
ReplyDeleteThe narrative of a "market economy" that emerges with evolution as a natural phenomenon is nonsense. There has never been a "market economy" and there never will be if one understand social science other than conventional economics.
The faster we humans heading into a globalized community lose the myth of the market as the invisible hand of nature that maximizes utility then better off we will be. This illusion results in increasing inequality and inhumanity, and it will end badly.
Proponents of "the market economy" reject a mixed or managed economy as "collectivism." Total non-sequitur. Fallacy of the excluded middle aka false dilemma, black and white thinking, and assuming the conclusion.
Time to jettison economic as a pseudo-science and replace it with a political economy that takes into account all relevant factors instead of assuming the conclusion by adopting methodological assumptions that result in dysfunctional policy, failed states, and conflict.
But we are headed to serfdom!
ReplyDeleteYes, Hayek presumed that a market society anything but a market society leads to collectivism, while overlooking the fact that a "market society" become a corporate state due to power relationships. That's what happens when you wrongly assume methodological individualism in the actual context of institutionalism. You get fascism and wage/debt slavery.
ReplyDeleteSo for fear of becoming entrapped in collectivism, the right has run into the trap of corporate statism aka fascism, and the attempt to escape it by running further to the right will result in the resurgence of feudalism with absolute rule by the owners of capital and land, I.e., the Great Acquisitors. This will be the end of entrepreneurship is disruptive technology is taken off the table.
Good points Tom. That's certainly the case for the so-called 'pure' market economy.
ReplyDeleteAs for Solow, there's some similarities here with ideas of another economist I admire, Kenneth Bouldin, at least in regard to the decentralized nature of a market economy. Boulding viewed the pure market economy as a pure myth, as you also point out. But he argued a market-oriented economy was definitely better at coordinating work and production than 'planned economies':
" The great case for the market as a mode of economic organization is that it permits the coordination of relatively small-scale organizations and hence enables us to enjoy the economies of specialization without involving us in the diseconomies of scale. This is a crucial point in the evaluation of capitalism versus socialism--that is, of more market oriented systems versus more politically-integrated and planned systems. The difficulties and diseconomies of a budget-controlled system increase once we pass a certain size of organization, simply because of the increasing difficulty of establishing an adequate information and communications system."
My take away is that market economies work best, but that size, power and influence matter (in terms of efficiency, equity, and other socially desirable goals). This also ties in well with the work of Ken and James Galbraith.
Thanks for posting the article.
As others have pointed out, Hayek's attack on "socialism" and "planned economies" was based on his economic calculation principle of information economics, buttressed by the supposed evidence of the failure of communism.
ReplyDeleteBut economic calculation argument only works in a pure market system, as Austrian Libertarians continually tell us in their denunciations of "Keynesianism." And pure markets systems are an oxymoron since there is no market without rules, oversight and regulation, which implies government and government implies institutionalism, law and power relationship.
In addition, the evidence fails, since the communist systems were not actual socialism or planned based on welfare. They were essentially the same a monopoly capitalism where a ruling class has seized power and controls the system for its own benefit.
It is far from established that "socialism" is unworkably ineffective and inefficient, especially with the degree of computational power available today and the greater knowledge of how complex system function.
Neoclassical economics and economic schools based on equilibrium are ergodic and therefore incapable of representing complex systems like modern economies. The argument against them, and the history of their failures, is at least as damning as the so-called evidence for the evils of "socialism," into which mixed and managed societies are lumped fallaciously side by side with Communist dictatorships that privileged high officials of the party and excluded non-party members from participation.
Socialism that was not. Nor was it dictatorship of the proletariat. It was a raw usurpation of power by perverse elites, as in fascism and corporate statism similar to Hitler and Mussolini. The difference was in rationale only, left or right.
Interestingly, the Nazis understood the mechanics of fiscal policy before Keynes published the General Theory and came very close to winning WWII due to strategic errors like fighting on two fronts when the Russians did not want conflict at the time.
In fact, Mises is on record for praising the Nazis as defenders of liberalism against the hated socialists, even though he did not endorse Nazism itself. Similarly with Hayek and Friedman in the case of the overthrow of democratically elected Allende and his replacement by General Pinochet as the defender of liberalism against socialism.
As I now say when I get a chance in context - Hayek was right about the Road to Serfdom, just wrong on the economics
ReplyDeleteWhat I find interesting is he is in nearly universal agreement with John Rawls but just frames it differently (http://evatt.labor.net.au/publications/papers/191.html)
On the actual comments made by others, I do not doubt any of Tom's points but if you relay this to anyone not prone to thinking aka most people - they'll either tell you that you're a nut or just look at you like a nutter
@ Senexx
ReplyDeleteThe Matrix
Modern capitalism depends on duping the rubes. It was the same with Nazism and Communism. It's only when a lot of people start waking up that force needs to be applied to keep them in line. Pervasive propaganda beginning in elementary school works most of the time.
It was the same in the feudal age, when religions was used to justify the political philosophy of some being better than other and therefore deserving more. This was Marx's opposition to religion. Otherwise, he could have cared less what people believed.
The starting point of Marx's analysis and subsequent sociological analysis is that reality is constructed culturally and institutionally. Most people buy into what they are encultured into and are ready to defend the system with their lives, even out it is the means of subjugating them.
There's a reason that this is off the table in conventional economics, which is why it is conventional.
The standard tack is to dismiss this sort of thinking as "conspiracy theory" and that is the problem with conspiracy theories. They just distract from what is actually going on and thereby serve the illusion.
and that is the problem with conspiracy theories. They just distract from what is actually going on and thereby serve the illusion.
ReplyDeleteYou lost me with that bit.
Otherwise I tend to make similar arguments - about reading - until the printing press came along - the elites kept us in the dark and basically did what they wanted until they couldn't any longer because reading gained a foothold amongst the masses etc.
I have some friends and acquaintances who are continually fretting about conspiracy theory stuff, and I have to remind them that there are real problems out there than are verifiable on evidence.
ReplyDeleteConspiracy theory is a really strong force in the US at the moment. The Right is driven by it. I'd say a good forty percent of the adult population of the US is into some kind of crazy.