The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

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Friday, November 23, 2012

Hayek, Friedman, And The Illusions Of Conservative Economics | The New Republic

JUST AS I WAS wondering how to start this review, along came the Sunday New York Times Magazinewith a short article by Adam Davidson with the title “Made in Austria: Will Friedrich von Hayek be the Tea Party’s Karl Marx?” One Tea Party activist reported that his group’s goal is to fill Congress with Hayekians. This project is unlikely to go smoothly if the price of admission includes an extensive reading of Hayek’s writings. As Davidson remarks, some of Hayek’s ideas would not go down well at all with the American far right: among them is a willingness to entertain a national health care program, and even a state-provided basic income for the poor.


We should not forget that the greatest generation can also be the greatest pain in the ass. Where else can one find quite that breezy confidence that government can get it right, just like it beat those Nazis, and arrived at a pragmatic accommodation with Uncle Joe, who after all was not that bad. Robert Solow even treats us with a non-scornful reference to the ICC, the utterly captured, rent-seeking device of the pre-Carter and Reagan deregulated transportation industry. The Nobel Prize winner assures us we are not on a slippery slope to serfdom; only the "Bad Hayek" thought that. It's just obvious pragmatism now -- we have to figure out how much government intervention we need and where. You expect to see Jackie walking in and Jack snapping his zippo to light her cigarette. Meanwhile Greece, Italy, Illinois, California, Spain, and maybe France and maybe us teeter on the brink of what will do as a slippery slope until a real one comes along. And if it is, Solow will be long gone before we hit the bottom, or maybe not that long gone.

I have a hard time taking economists seriously as the towering intellectuals they take themselves to be. I don't remember ever getting this vibe from Friedman and Hayek (Hayek's writings may be over-ambitious in some ways but his tone usually seems pretty modest). But just read this Solow piece and see if you don't see what I mean. In some sense I think it's fair to say that macroeconomics especially consists of building mathematical models of economic processes that basically don't work very well. For having anything like a comprehensive or even educated grasp of such widely relevant social entities as law, history and philosophy, anybody who has been to a few economics conferences should know it is among economists not exactly common. And the average economist, I would hazard, is well aware of the limitations of economic methodology. But that seems to dissipate at the highest levels of the profession. An occupational hazard perhaps: Einstein had some pretty idiotic things to say about world politics. It could be it's an MIT thing-- some bits I read of Paul Samuelson's struck as ludicrously self-impressed. No doubt some of this also comes from the conceit of a science that purports to tell us how society should be managed, except when in its Hayekian et al. mode it is telling us that such undertakings are positively harmful. Somehow Solow got through his entire review without mentioning the old Keynesian saw that academic ideas trickle down to influence practical men. Well, they do. If Solow had the slightest feel for what the Reagan and Thatcher years were like to those making them, as he obviously has a feel for what the good ol' planning days were like, he would not be so condescendingly skeptical of the vital influence of Hayek and Friedman on Reaganites and Thatcherites. Influence is hardly the word. We bled that stuff. At some point Solow concedes about something, that he wouldn't know because he wasn't there, and he sure wasn't.

I've started reading Angus Burgin's The Great Persuasion and so far it is really good, partly because of its comprehensive notes detailing a literature that has sprung up in the last 20 years or so about the reemergence of free-market and liberty-oriented and "conservative" ideas. Even one of these footnotes if worth a lot more than a I wouldn't know I wasn't there from a famous economist. Even a few actual facts weigh a lot more than an elegant pose. --TS

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Economic theory is very slow to stimulate political action and then the effect of the political action is not understood for decades, sometimes many decades. The Reagan stimulus (somewhat reduced taxes and a simpler code) is frequently given credit for about 20 years of economic growth and (eventually) to a near-balanced budget. But what we don't know is if the kind of GDP growth we had from 1985 to 2007 was really a sustainable phenomenon; it was, after all, largely based on personal and public borrowed money. We don't know the limits of stimulus by the expansion of the money supply. We may find out in the next few years. It seems to me that the economy, at least here on the West Coast, was frothy all during the "good old days" of the Reagan expansion: housing prices were going up 3-4% per year, wages were going up dramatically, investments were paying off big time, people were having their noses fixed, their teeth whitened, glamour consultants thrived. Is that kind of activity really achievable on a sustained basis? well, it is a lot different from the economy we had from 1945 to 1985. What is normal? I don't know but I suspect we will be arguing the definition for several decades to come and we may discover that economic growth depends greatly on population growth which, in turn, seems to have limits. You have a good blog here; keep it up.

Posted by: Kieth | Nov 23, 2012 2:25:03 PM

"I have a hard time taking economists seriously as the towering intellectuals they take themselves to be." Then stop, Mr Smith, referring to their pretendy prize as a Nobel Prize.

Posted by: dearieme | Nov 24, 2012 4:18:06 AM

Such a crazy world

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