Tag Archives | Hayek

The Continuing Relevance of Hayek

Economist Russ Roberts has a good column in today’s Wall Street Journal outlining the continuing relevance of F.A. Hayek’s work to our own time:

He was born in the 19th century, wrote his most influential book more than 65 years ago, and he’s not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise….

Hayek is not the only dead economist to have garnered new attention. Most of the living ones lost credibility when the Great Recession ended the much-hyped Great Moderation. And fears of another Great Depression caused a natural look to the past. When Federal Reserve Chairman Ben Bernanke zealously expanded the Fed’s balance sheet, he was surely remembering Milton Friedman’s indictment of the Fed’s inaction in the 1930s. On the fiscal side, Keynes was also suddenly in vogue again…

But now that the stimulus has barely dented the unemployment rate, and with government spending and deficits soaring, it’s natural to turn to Hayek. He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story….

Second, Hayek highlighted the Fed’s role in the business cycle. Former Fed Chairman Alan Greenspan’s artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.

Third, as Hayek contended in “The Road to Serfdom,” political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live. When the state has the final say on the economy, the

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Does Hayek Belong in High School Economics Classes?

At the Freakonomics blog, economist Justin Wolfers criticizes a recent Texas Board of Education effort to include the work of F.A. Hayek in high school economics classes. He sees it as a “conservative” ideological mandate that isn’t justified by Hayek’s scholarly influence:

Sunday’s New York Times reported on attempts by the Texas Board of Education to rewrite the high school curriculum in accordance with its conservative values….. I find the raw ideological force exerted by these “educators” to be both striking and dispiriting.

How do they plan to rewrite high school economics?

In economics, the revisions add Milton Friedman and Friedrich von Hayek, two champions of free-market economic theory, to the usual list of economists to be studied – economists like Adam Smith, Karl Marx and John Maynard Keynes.

Taking social science seriously surely means teaching the insights of the most prominent, most important, or most influential economists. This involves teaching important theories—even those you disagree with. There’s no doubt about the influence of Smith, Marx and Keynes; Friedman also belongs. But does Hayek belong on this list?

Let’s use data to inform this debate. I counted the number of references to each economist in the scholarly literature indexed by JSTOR, finding 30,708 articles mentioning “Adam Smith”; 25,626 articles mentioning “Karl Marx”; and 4,945 mentioning “John Maynard Keynes” (the middle name was required to avoid articles by his father, John Neville Keynes). “Milton Friedman” sits easily with this group, and was mentioned in 8,924 articles.

But searching for “Friedrich von Hayek” only yielded 398 articles; adding “Friedrich Hayek” raised his total to 1242 mentions; also allowing “FH Hayek” raised his count to 1561….

By the way, “Lawrence Summers” was mentioned 1712 times, adding “Larry Summers” raises his score to 1972 mentions; and also including “LH Summers” raises his score

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Gift-Giving and Government Planning

In a well-known 1993 article and a recent book, economist Joel Waldfogel argues that holiday gift-giving is inefficient. Very often, givers don’t fully understand the recipients’ wants and end up purchasing things that the recipients value at less than their cost. Waldfogel estimates that some 10 to 33% of the value of gifts is “wasted” in this way. Even gift certificates (which allow recipients to use the money to purchase any goods available at the store in question) are, on average, worth only about 70 to 86 percent of their face value to the recipient.

Unlike Waldfogel, I am not convinced that this proves that gift-giving is inefficient or irrational. True, the recipient would be materially better off if the giver would simply send him a check for $50 instead spending the same amount of money on a gift. However, buying a gift instead of sending money serves a signalling function: it shows that you care enough about the person to spend time and effort figuring out what they might like. And if you succeed in buying them something they really want, it shows that you understand them relatively well. Thus, the recipient might ultimately be happier to receive a gift that is “only” 90% as valuable to him as its market price than to receive 100% of the gift’s price in cash. Similarly, if you get a gift that you value far less than its price, that’s a sign that the giver either doesn’t understand your preferences very well, or didn’t make the effort to try to figure them out. Both scenarios give you some useful information about your friends and relatives that you wouldn’t get from a check. In sum, gift-giving may often be better than giving money because givers use it to send social signals, [...]

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Hayek on the Use of Superior Expert Knowledge as a Justification for Paternalism

In my most recent post on paternalism, I criticized claims that paternalistic policies can be justified on the grounds that government-appointed experts have greater knowledge than consumers and are less likely to be influenced to cognitive error. Among other points, I emphasized that government experts have no way of determining how much benefit consumers get from potentially risky products and therefore no good way of deciding which products should be banned or restricted on the grounds that their costs outweigh their benefits. In a recent e-mail, NYU economist Mario Rizzo (himself a leading academic critic of paternalism) points out that F.A. Hayek made a similar point in his classic 1945 article, “The Use of Knowledge in Society”:

It may be admitted that, as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available—though this is of course merely shifting the difficulty to the problem of selecting the experts. What I wish to point out is that, even assuming that this problem can be readily solved, it is only a small part of the wider problem.

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are

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