Today is F.A. Hayek's 110th birthday. Hayek was perhaps the most influential libertarian thinker of the 20th century. Books such as The Road to Serfdom, The Constitution of Liberty, and Law, Legislation, and Liberty had a major impact on economics, political theory, and legal thought. Hayek also won a Nobel Prize in Economics for his technical work on monetary policy and business cycles. My personal favorite among Hayek's works is his famous 1945 article, "The Use of Knowledge in Society," which explains why private sector institutions generally do a better job of gathering and using information than government.
Last year, I wrote a post explaining why Hayek's central ideas are still relevant today, decades after he wrote his most important works. Hayek's criticism of central planning remains important in an age where governments once again seek to nationalize and restructure large sectors of the economy. His less well-known critique of conservatism also retains a great deal of relevance in our time, for reasons I elaborated here.
UPDATE: It looks like Hayek's birthday is actually May 8, rather than May 5. Sorry about the confusion. However, the silver lining of this particular cloud is that I get to post about Hayek again on Friday!
Related Posts (on one page):
Doesn't seem to help. The human wish to believe in God, Big Brother, The Dear Leader, The Party, scientific consensus, the stars, or some like demiurge, as infinitely varied in accidents as infinitismally varied in substance, appears insurmountable.
Then comes the hangover, and, for some, a commitment to sobriety. Hayek, in the tradition of, yes, Cato and, later, Marcus Aurelius provides invaluable support for making such a commitment stick. Maturity has its own appeal.
A story that illustrates well that while "...Hayek's central ideas are still relevant today..." even the odd anecdotes are going to be very useful very soon, too.
Cheers,
With the small exception of AIG, B of A, Citigroup, Wells, Lehman, Bear, GM, Chrysler, etc. I'm sure Hayek, had he been alive today, would be extolling the capabilities of these great private sector institutions...
Presumably you suggest the government does a better job of "gathering and using information"? What examples would you like to point us toward? Are the bank regulators particularly adept? The Fed? Congress?
And does it not occur to you that the failure of these institutions is an action by the private sector? It wasn't government that told the people who ran Lehman that they were screw-ups and needed to lose their jobs -- it was the market. And, please notice, it did so months in advance of when the government detected that things were not quite right in banking.
Indeed, the only way government knew things were going wrong in the mortgage business was to take notice of the behavior of private actors. When they started losing confidence in the holders of mortgage securities, only then did the government stop with the Pollyanna don't worry, be happy messages about mortgages and get worried.
Maybe your essential ignorance here is your failure to realize that the wisdom of the free market includes destruction as well as construction. Markets need to pick losers as well as winners. It's necessary to sometimes tell a certain CEO or board of directors that they're idiots, they've made bad decisions, and they need to lose their jobs and free up the capital invested in their operations for use elsewhere. That is exactly what the failure of these financial institutions represents. It is the wisdom of the private sector incarnate.
Now, if it were purely up to government, then what would happen is these screw-up institutions would just go on and on, because government pays no attention to a lack of confidence of investors, until their distortions and mistakes engulfed the entire economy and everything crashed.
Road to Serfdom, or Road to Stagnation? I think that Hayek's most famous work was colored by the fact that he was writing it during/after WWII. If we accept that non-market actors are inefficient, I think it follows that they will be somewhat unable to set up a truly totalitarian state. Rather, the result would be a degenerate welfare state that might be bankrupt, might be constantly bedeviled by supply crises, but probably isn't going to go around shooting people.
The "essential wisdom" of the free markets didn't work in this case. Had you been paying attention, you'd have realized it.
So what does the government do well?
Tell me just how AIG Financial Products group "depended" on financial info from any of those sources in writing $500 billion of CDS? CDS that they were sure they were never going to have to pay a penny on. And, explain to me how, if their "gathering and using information" is so superb, did they not realize the information was faulty?
The point is, AIG, and the rest of the above, plus others not mentioned, did a terrible job of gathering information and putting it to use. And in doing so, undermined the US and world financial systems and almost brought down the entire US economy.
And blaming the government, or asking if the gov't can do it better, entirely misses the point.
Your argument proves my point - they didn't know. They thought they did, and yet, you, who were miles away and had nowhere near the information gathering capability that AIG had.. you knew. But they didn't? Doesn't make sense does it?
That is, it isn't a question of public sector vs. private sector -- it's one of sheer size, and of removal from "where the action is," as it were.
It follows that if knowledge is concentrated -- regardless of who is doing the concentrating -- this coordination gets frustrated.
But then, hey, he acknowledges at the outset that he's pursuing "a rational economic order." Since that has as much of a tie to reality as a snark hunt... {shrug}
If you have a comment about spelling, typos, or format errors, please e-mail the poster directly rather than posting a comment.
Comment Policy: We reserve the right to edit or delete comments, and in extreme cases to ban commenters, at our discretion. Comments must be relevant and civil (and, especially, free of name-calling). We think of comment threads like dinner parties at our homes. If you make the party unpleasant for us or for others, we'd rather you went elsewhere. We're happy to see a wide range of viewpoints, but we want all of them to be expressed as politely as possible.
We realize that such a comment policy can never be evenly enforced, because we can't possibly monitor every comment equally well. Hundreds of comments are posted every day here, and we don't read them all. Those we read, we read with different degrees of attention, and in different moods. We try to be fair, but we make no promises.
And remember, it's a big Internet. If you think we were mistaken in removing your post (or, in extreme cases, in removing you) -- or if you prefer a more free-for-all approach -- there are surely plenty of ways you can still get your views out.