East Boston Economics: 2021

Tuesday, November 30, 2021

On Hayek

Great intellectual history here.

President Obama is trying to sell still another “jobs” program, oblivious to the fact that his last stimulus package failed to create permanent jobs. Like many politicians and academics, he is convinced that government can “grow the economy,” despite overwhelming evidence that such Keynesian programs are ineffective.
The president and his supporters are in the grip of what the economist F.A. Hayek once called the “fatal conceit” -- the idea that politicians can manage an economy according to some overall plan. Their efforts to create “green” jobs, stimulate the economy, redistribute income and manage costs in the health care system are all examples of the fatal conceit run amok. A large and modern economy, made up of hundreds of millions of participants who make spending and investment decisions by the minute, is far too complex to allow for centralized coordination. Such efforts, Hayek warned, invariably make a difficult situation worse.
Born in Austria in 1899, Hayek developed his skeptical views about power and planning in response to the catastrophes he witnessed in Europe during the first half of the 20th century. The classical liberal order of representative government and free markets had contributed to a century of relative peace and prosperity from 1815 to 1914. The rise of nationalism and socialism undermined the old order, leading to three decades of war, dislocation and depression. For Hayek, the solution to the challenges of the 20th century was to be found in the renewal of the proud tradition of classical liberalism.
Hayek set forth his views most clearly in 1944 in his now classic work, “The Road to Serfdom,” where he argued that any effort to organize society around a common economic plan will inevitably lead to a loss of freedom and a return of the common man to a condition of servitude and dependence. Hayek reminded his readers that Hitler was not just a nationalist but a socialist as well, and that his brutal tyranny developed out of a malignant synthesis of these ideas. Market liberalism, in contrast to both ideologies, follows no overall plan but allows progress to emerge out of the coordinating actions of free individuals.
Hayek wrote the book partly in response to John Maynard Keynes, the British economist who had argued a few years earlier that government could lead the economy out of depression through deficit spending. Keynes believed that this would stimulate consumer demand and private investment.