Friedrich August von Hayek was a charming and gracious man who accepted my invitation to lunch in Salzburg when I was 23 years old. But even Milton Friedman called his price theory “very flawed” and his capital theory “unreadable.” He was denied a post in economics at the University of Chicago, and his reputation today rests largely on The Road to Serfdom, a warning against Soviet-style central planning with which Keynes felt free to declare “deeply moved agreement.”
On policy matters Hayek was no extremist and often aligned with Keynes. As Professor Walter Block points out in the Journal of Libertarian Studies, he agreed that central banks should fight unemployment, he favored fair labor standards and “an extensive system of social services;” also antitrust and policing against fraud and deception and state-sponsored health insurance; what we might call a “public option.” All of this drove Professor Block to declare in despair that Bill and Hillary Clinton should have cited him in their campaign for health care reforms. None of this came from Hayek’s own economics: as Block wrote, the Hayek of 1944 “stands condemned by the Hayek of 1931 and 1933.” The contrast between Hayek’s economic ideas and his policy views is for our friends on the other side to explain if they can…
Keynes favored deficit spending – “loan-expenditure” – to fight unemployment, and he denounced the pernicious doctrine of the natural rate of unemployment in 1929, almost forty years before our friend Professor Edmund Phelps is credited with inventing it:
“The Conservative belief that there is some law of nature …that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his brain fuddled with nonsense for years and years…”Keynes’s greatest policy polemic was his first, The immortal Economic Consequences of the Peace. His message was that debts that cannot be paid will not be paid, and the attempt to squeeze blood from stones brings disaster. As Nicholas Wapshott tells, Keynes was a hero to Hayek and his friends in 1919 Vienna for this. “Europe is solid with herself,” he wrote. “If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds.” So it is today with Germany and France and Holland and Finland on one side and Greece, Portugal, Ireland, Spain and Italy on the other.
In each of these areas: jobs, banks, and international debt, we can read Keynes with direct relevance to our present miseries. Against this, today’s followers of Hayek tell us to accept those miseries and not to relieve them.
Well, Hayek would say that attempting to relieve those miseries with counter-cyclical government spending will just make them worse in aggregate (i.e. you may relieve the current miseries, but the imbalances created by government spending in the market will just lead to later corrections that wouldn’t otherwise have occurred).
Obviously Keynes would disagree; though any cosmopolitan economist knows that virtually anything is possible in terms of policy correctness assuming the correct combination of fundamentals (e.g. idle/mobilized resources, monetary policy, tax rates, debt-to-gdp ratio, liquidity, business risk aversion, investor confidence, and so forth). That’s part of the reason why Economist Bruce Bartlett believed it was smart to support Reagan’s economic policies in 1980, but that those same policies are not appropriate today because the problems facing our economy are much different.
To wit, there are certainly economic situations in which Austrian solutions are 100% appropriate. But I am hard-pressed to believe that the same critical mass of human action which Austrians tell us is too complex to interfere with beneficially is simultaneously not complex enough to create situations in which un-checked incentives lead to bad results. The process of regulating those incentives may be subject to inherently human flaws, but letting the perfect be the enemy of the good in this case is to leave a one-legged man without a crutch, on the basis that the crutch is not a well-fitted prosthetic. An inefficiently enforced regulation that still gets good results is not a bad regulation by any means.
h/t AZSpot
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ataxiwardance liked this imall4frogs said: A chat with my boss–Him: So what do you want government to do?–Me: Be the Sheriff! Step up! It’s their job!–Him: Ahh, but that’s NOT their job. Their job is to get re-elected. === I hate it when my boss is right. ;-)
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