Tim Duy: In Defense of Hayek

Tim Duy comes to the defense of Hayek:

In Defense of Hayek, by Tim Duy: I feel a need to at least quickly defend Hayek against Jeffery Sachs attacks. Sachs leaves the impression that Hayek is a right wing ideologue who argues against any state provision of social services. From the Road to Serfdom:

There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all without endangering general freedom…there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody…Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of the assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong….To the same category belongs also the increase of security through the state’s rendering assistance to the victims of such “acts of God” as earthquakes and floods. Whenever communal action can mitigate disasters against which the individual can neither attempt to guard himself or make provision for the consequences, such communal action should undoubtedly be taken….There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them…

The type of planning that Hayek was vociferously opposed to is that meant to offset not insurable risk, but the fundamental shifts that accompany structural change:

The planning for security which has such an insidious effect on liberty is that for security of a different kind. It is planning designed to protect individuals or groups against diminutions of their income, which although in no way deserved yet in competitive society occur daily, against losses imposing severe hardships having no moral justification yet inseparable from the competitive system.

In other words, it is appropriate for society to guarantee a proscribed level of health care accessibility, but not to guarantee you against loss because technological change eliminates your job. Note that  Hayek’s list of accessible social services is actually quite broad. And in other parts of the Road to Serfdom, he recognizes the need for government to address externalities, monopolies, etc.

I dislike efforts to color Hayek as a one-dimensional personality as much as I am irritated by efforts from the right to discredit Keynes as a socialist. Of course, some blame for the attack on Hayek should be directed to the right; so called supporters of Hayek have damaged his reputation with such simplistic expositions as this cartoon.

Speaking of Keynes, Robert Skidelsky’s masterful biography includes Keynes’s thoughts on Hayek:

Keynes’s response was unexpected. Hayek’s was a “grand book,” he wrote, and “we all have the greatest reason to be grateful to you for saying so well what needs so much to be said….Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement, but in deeply moved agreement.”

Keynes did note, however, that Hayek, by admitting to the need for government to serve a social function, recognized that there was in fact need for a middle ground, but could not determine where to draw it.

Finally, it is important to recognize that Hayek was writing in reaction to the rise of Fascism in Germany and Stalinism in the Soviet Union. There is an important lesson there, and God help us if we ignore it in an eagerness to discredit Hayek.

Comments

[Emmanuel]

I am not a big Hayek fan, but I do appreciate this defense of him. For such a famous, widely-admired figure, Sachs seems to forget the problems with drawing conclusions from a very limited sample of Scandinavian countries. His case is a perfect illustration of "small-sample bias". They have minuscule populations and are culturally homogeneous, and I don't think we can generalize broadly from their example. We can admire Scandinavian countries, but their situations are highly context-specific.

It goes back to the Easterly / Sachs debate, of which I side with Easterly for the most part. Extolling the Scandinavian example out of context can only lead us down the, er, "Road to Smurfdom."

[realpc]

"Sachs seems to forget the problems with drawing conclusions from a very limited sample of Scandinavian countries."

Sachs is not objective, and is trying to promote government intervention. But no one is against government intervention, so he pretends that Hayek was, and grossly simplifies the argument.
Sachs doesn't mention examples where too much government control has led to failure, or where relaxing government controls actually decreased poverty.

Everyone agrees that some government intervention is necessary, but everyone disagrees on exactly how much and what kind. Sachs is trying to pretend that more is always better.

[anne]

Nice defense, and Sachs was foolish to make the argument using Hayek though Sachs argued well as always. As for Easterly, there is no sense of concern for those we need to be concerned about.

[evagrius]

I think Sachs is reacting not to Hayek, but those "right-wing" pundits who uncritically use him for their own purpose.

As for the Scandinavian example being too "context-specific", the same goes for those who advocate a U.S. approach for countries that don't have the same cullture or politics.

[Emmanuel]

evagrius: No disagreement here. The US example is a perfectly dreadful one, and should only be emulated by those who prize overconsumption, overborrowing, inequality, obesity, etc. If he were still alive, I think Hayek would be inclined to say that the administration is leading the country down the road to serfdom with the Iraq and Afghanistan misadventures and the Medicaid Big Pharma giveaways.

Anne: If you read either of his books, The Elusive Quest for Growth or The White Man's Burden, Easterly does not suggest that markets alone will solve problems of development. Far from it--he advocates that these poor countries take up the onus of diagnosing their situations as they see it, then searching for solutions on their own as opposed to being told what to do by international financial institutions saying "markets will solve your woes."

You will also see that Easterly is passionate about fostering development. Yes, developed countries could devote more to aid. But, what evidence is there that after $2.3 trillion spent on it without much in the way of results, spending even more on aid is the solution? No one is brilliant enough to singlehandedly plot the "end of poverty", and Sachs is most likely not an exception much as he'd like to think otherwise.

[anne]

Emmanuel, I understand completely and partially agree, but I am paying attention and thinking that Easterly much over-estimates the extent of international aid programs and under-estimates the significance and extent to which aid organizations understand local needs. I will give Easterly another try, and find if I am too dismissive as you suggest.

[piglet]

"Sachs seems to forget the problems with drawing conclusions from a very limited sample of Scandinavian countries. His case is a perfect illustration of "small-sample bias"."

Well, at least he makes an effort of taking empirical reality into account - as opposed to many of his colleagues who claim (for instance) that lower taxes are good without any empirical evidence for that claim whatsoever ;-)

[dryfly]

Nice job Tim - first really good defense of Hayek I've ever read. All I see are the right wing cartoon characterizations of Saint Hayek - not the more moderate view you portrayed. I guess I have to read more on the subject & avoid the cartoon sections.

And I agree with the middle ground concept. Protect people from real deprivation if at all possible but not from all risks & diminutions. Most all can live with a 'step down' but not a 'step off the cliff'.

Great post - best I've read in a while.

[reason]

OK Hayek goes back on the reading list. I have only read summaries.

But what I'm sure Hayek did say and sticks in my throat is his raising (wierdly in my view) Liberty (meaning economic liberty) to a superior good, to be valued even over general welfare. I concur with respect to intellectual liberty, but economic liberty does not deserve this exalted status, it is something to politically balanced against other values like many other things.

[goodwin ginger]

It is not simply a matter that “Hayek was writing in reaction to the rise of fascism in Germany and Stalinism in the Soviet Union.” We did not need Hayek to advise us on such ills. What Hayek did in the Road to Serfdom was to equivocate all forms of planning with Stalinism and Fascism.

That like a good classical liberal he throws a bone to public goods in a hurried litany is hardly evidence of his subtlety, but, rather, evidence of the degree to which he was following a template well laid out. Smith and Ricardo too drew up such lists.

True, Hayek is two inches deeper than Bastiat. But so what?

[Lafayette]

"Sachs leaves the impression that Hayek is a right wing ideologue who argues against any state provision of social services."

So? Sachs is a left wing ideologue who argues that massive state spending assures social services for the betterment of one and all.

What else should anyone expect from Sachs as a persepctive?

NB: I wonder if Sach's medical insurance policy is funded by the state or ... is private.

[Lafayette]

"Keynes did note, however, that Hayek, by admitting to the need for government to serve a social function, recognized that there was in fact need for a middle ground, but could not determine where to draw it."

In fact, history subsequent to the lives of both Hayek and Keynes has shown that this middle ground is still beyond the horizon.

The consequence of WW2, and the Marshall Plan, was to establish in Europe statist governments that (controlling Marshall Plan funding) became ingrained in the political landscape of the major countries till this very day. The Marshall Plan worked in reconstructing Europe as a bulwark against Communism. But, Europe's version of statism has shown subsequently its shortcomings.

The expansion of Europe was largely due to the protection of its industries (and work forces) behind tariff barriers. The GATT negotiation brought down the barriers in the mid-nineties (largely to entice Communist China into the global economy) and the consequences of this sea change in global trade is still felt today. The European states are unable to maintain sclerotic industries against the prevailing winds of globalization.

Postwar America, however, took another course. Faithful to its roots based upon individualism, it has become, sadly, the prey of an oligarchy that dominates its political affairs. The military-industrial complex that Eisenhower warned about has come to fruition. Americans are consummate consumers and remain fixated upon capital accumulation for that reason. They regard with distrust state intervention that inevitably requires higher taxation levels and therefore lower net incomes.

So, where is the middle ground? Well, it is somewhere in between these two examples. America need move left and Europe right. The latter has begun the process, but the former is still stuck in a antiquated, almost religious belief that whatever is good for America is good for the world. In a nation where 80% of the riches generated go to only 20% of the population, that tired concept is very dangerous indeed.

Still, time will tell. In politics the only constant is change. It is going to be an exciting time during the remainder of the new century's first decade. One is well advised to pay attention ...

[Lafayette]

Anne: "Well, at least he makes an effort of taking empirical reality into account"

No doubt, he does.

His mistake is to transplant the concept from the advanced European northern hemisphere into a context of the African southern hemisphere. This doesn't work, particularly in countries where the dominant political "grassroots" remains one of tribalism.

The other failure with Sach's "methodology" (and that word gives more credit than is due) is also the cultural context of developing economies. The rich are typically those who benefit from access to the political levers, either directly or indirectly.

Much of the aid spent on Africa for instance, went back North ... notably to the Cote d'Azur or Switzerland, where abound the houses of long-time pro-West dictators like Mobutu. Monaco is just a short helicopter jump away. How convenient.

What to do? I would suggest a period of "benign neglect" abetted by micro-credit lending. It is perhaps "Hayekian" to believe ardently in the development of individual self-sustainability in these countries. But, it is also worth trying. First evidence seems to indicate that these countries, where micro-credit financing has taken hold, like the results.