Before offering that initial response, however, let me posit that I admire Hayek's insights, in many ways. As author of The Transparent Society: Will Technology Force us to Choose between Privacy and Freedom, I am in tune with his critique that one of the worst flaws in any modern market is failure to maximize the number of diverse, maximally-informed players, in a truly competitive playing field. This draws upon the fundamentals of the liberal enlightenment, as elucidated as far back as Adam Smith. I will also avow that his role as a critic of statist-interventionist tendencies in economic management has been useful and often cogent.Only, in regards the Wall Street Journal article what I have to say to the author, Russ Roberts, is "Get bent!"
Speaking as a hired mouthpiece for Rupert Murdoch, Roberts is part of the twisting of a once-vaunted journal into a principal tool for the destruction of the market economy it portends to defend. Along with the intellectual courtesans (a polite term) at Cato, Heritage and AEI, it has played a major role in the warping of conservatism.
Specifically, the perversion of "free enterprise" away from its Smithian meaning of maximized competition and toward a meaning that Adam Smith openly, repeatedly and vociferously despised... the protection of uneven influence and collusive power in the hands of private oligarchy.
...an enemy that killed every market until Smith came upon the scene, and that has done everything in its power - through the promulgation of Culture War" - to distract from the word "competition." The word that ought to be the true focus of any genuine libertarian. Any libertarian who was not a monstrously hypocritical dunce about human nature and history, that is.
At his best, Hayek was all about competition. The larger the number of knowledge-empowered players the better! And yes, government bureaucrats are inherently dangerous to competition, if they are left to "guide" an economy. They are few in numbers and hence prone to group delusion. Their limited information makes their models inherently cumbersome and planning problematic. (Though each generation of mercantilist hegemons does seem to do a better job than the last: witness the progression from the USSR to Japan Inc, to modern China.)But Hayek collapses when he is used SOLELY as a critic of government economic management. For his critiques apply equally well to ANY economy-running oligarchy! And I have yet to see anyone explain cogently why 5,000 conniving golf-buddies, appointing each other onto each others' boards and granting each other 100 $million bonuses while calling each other "geniuses" and raping their stockholders...
...are inherently better managers than 50,000 highly educated civil servants, answerable to solemn codes of accountability, regularly audited and subject to open scrutiny, to prevent their self-interest conflicting with the job they are charged to do. By Hayek's own calculations, the latter group is VASTLY preferable! Moreover, Adam Smith would have said so, as well.
Of course, the BEST solution is genuine competition, with only enough government regulation to ensure that the market functions well as our primary engine of problem solving creativity. If 50,000 accountable bureaucrats are better than 5,000 secretly colluding oligarchs, then 5,000,000 small and medium-scale businesses are even better. They are more likely - by Hayekian reasoning - to discover the alternate paths and most creative solutions.
{Side note: I would part with many libertarians - and Hayek - in that I believe that markets can and should be "tuned" to shift their incentives in directions that society has chosen, through well-vetted political consensus, to be desirable in the long run, or to take into account externality costs; e.g. tobacco taxes and mileage standards, along with safety and other desiderata. And state intervention that *expands* the number of savvy, empowered competitors (public health and education for poor kids) is absolutely justifiable in market terms. (And so said Adam Smith.) { Finally, in a world where mercantilist hegemonies are running roughshod over market enterprise, some assertive governance is needed, just to protect our own companies from the Marxian "contradictions" that make them easy victims of nationaist-mercantile manipulation, say, by China. The matter is especially severe when such nations are scofflaws toward intellectual property.)
Finally, I am going to be brutally frank again. For the neoconservative movement to haul forth Hayek at this point an howl at Keynes... after their entire movement has seen its credibility destroyed by reality, across the last twenty years, is an ultimate groaner.
Let's put it plain. The neocons can point to NOT A SINGLE CLEAR STATISTICAL METRIC OF NATIONAL HEATH THAT UNAMBIGUOUSLY IMPROVED DURING THEIR TENURE.
Their mythologies lie in ruins, along with our economy, our civil society, our small businesses, our markets, our military, our alliances, our stature and our science. Not one of the bold predictions made by Supply Side economics ever came true. Not one, ever.
Their program of stocking the civil service with industry whores - turning "regulatory capture" into relentless government policy - is now revealed in its full glory, in the Gulf of Mexico... and I am furious at Barrack Obama, for failing to appoint a special prosecutor.
No, I am not claiming tat the Keynsians have it all sussed! It is arguable that the stimulus prevented a FAR deeper depression... most economists think so. But here's the crux: the Keynsian modality is to "use debt when times are bad and buy down debt when times are good." The test isn't bad time (like now), but DID THE KEYNSIANS BUY DOWN DEBT WHEN TIMES WERE GOOD?
.
The fact is that they did. Under Clinton. He tried to buy down our debt and build a rainy day fund for hard times. If this had been allowed, we would have been in great shape. But instead, the neocons said "give largesse to the oligarchs! The debt will vanish!" Yeah right. Smith knew better, 250 years ago.No. Excuse me, but I don't think that the neocons have any more right to cite F. Hayek than they do to mention the name of Adam Smith. For them to try to take shelter behind such men is a travesty.
Me? I think I'll stick with the democrats and Keynsians a while longer, rather than listen any further to a howling pack of certifiable loons and shills for a new feudal caste. People who drove both capitalism and the nation that I love straight toward an early grave.
28 comments:
"For the neoconservative movement to haul forth Hayek at this point an howl at Keynes... after their entire movement has seen its credibility destroyed by reality, across the last twenty years, is an ultimate groaner."
Uh, no. That would be the libertarians and free market conservatives. The actual "neocons" are closer in agreement with you. They're not Hayek fans.
I don't think the Gulf of Mexico helps your case either. We've got to get energy somewhere. It wasn't the free market that decided to limit our options to deep oil drilling.
Good piece.
Randy, I am in favor of drilling, as part of a general program to win back energy independence.
What is criminally culpable is the fact that the central aim of the Bushites was "regulatory capture." (look it up.) What is happening in the Gulf was a direct result.
I know you've heard this before:
"Never attribute to malice that which can be adequately explained by stupidity." -- Hanlon's razor
It's a bit silly to be blaming Bush for this. That WSJ article you linked earlier has activists claiming the rules have been lax for decades.
I don't see anyone saying that the "blowout preventer" would really have prevented this. Even if it had, they've been used elsewhere since the early '90s.
ANWR and Yucca Mountain are looking better and better.
Dr. Brin isn't saying that Bush and crew were trying to cause a well explosion. Instead, they were working to maximize profits for the oil companies (and themselves) by minimizing costs by deregulating the industry and allowing the oil cos. to cut corners. The problem with cutting corners is that eventually, something gives. And it did.
What we're seeing now is a direct result of cost-cutting and deregulation. And for all the cries of how private industry is better suited to govern itself and keep an eye on things... the blowup of the finance system and the loss of this oil well only go to prove that private industry cannot be trusted without government oversight.
The best way to ensure that government oversight remains efficient and legal is through transparency in government. This way, government can do its job to protect the people and ensure that industry is best able to effectively and efficiently operate. (Trust me, BP would much rather this well didn't blow up. Think of all the money BP is losing right now, just because they tried to cut corners and increase profits by a fractional amount.)
Robert A. Howard, Tangents Webcomic Reviews
Oh, of course.
Environmentalists are to blame for forcing oil companies to do deep water drilling.
What a lovely piece of disingenuous blame-shifting. Puts the onus on environmentalists. Distracts us from the corruption and corner-cutting the were the real culprits.
"We've got to get energy somewhere."
Right. And oil is the only alternative, so we'd better raise the subsidies and dole out more tax cuts.
* * *
It's time to give the invisible hand a good hard yank to break the strings.
It's time to start paying attention to the externalities we've been ignoring for the last century; markets and the ecosystems of innovation require information to function properly.
Robert,
Bush did not deregulate the oil industry. As I said, that blowout preventer (even if it mattered) was in use overseas since the early '90s. The Clinton administration could have done the same if they thought it was important.
In fact, there are oil skimmers capable of cleaning up more oil except that environmental regulations won't allow their use here.
You do realize that the blowout preventer was damaged during drilling, and that BP continued to drill anyway. If the blowout preventer had been in good condition, then very likely the oil leak would be minimal in nature, or have been stopped at the source.
For that matter, you do realize that there were five separate things BP did that contributed to the explosion (that we have learned to date, at least), don't you? Or are you just spouting generalities without having done the research to know just what is going on in the Gulf?
Rob H.
Sorry Robert, I meant the acoustic switch. It's late.
I'm not saying BP didn't screw up badly, or perhaps even criminally. Nor am I saying we couldn't use a few more regulations. I'm just saying regulation wasn't the main problem, and that Bush didn't deregulate to any significant degree.
As I intended to say, the Clinton administration could have required that acoustic switch if they wanted to.
Good article. Regulators have a very important role to play in any enterprise that places the lives and assets of the citizenry at risk. Self-policing only works when the markets are keenly aware of the economic consequences of failure. BP, and much of the oil industry, missed this key points and now everyone pays. Indeed, there are a few examples where industries have learned a valuable lesson and established effective self-regulation. However, this requires the industry leaders to recognize and commit to such things.
Democrat or Republican , neither side is completely innocent. It is easy to pick and choose specific incidents to "prove" any side culpable. However, it is undeniable that the Republican mantra since the 1980s has largely been "private industry good; government bad". This sophomoric dichotomy ignores the fact that both carry positives and negatives and can serve to compliment each other. For example, private industry is forced to innovate to stay competitive, which government generally does not do. On the flip side, private industry is largely set up to be concerned primarily with short-term profits, and as such may be blind to externalities and long-term consequences of actions that have net negative impacts upon society, whereas government officials, not accountable to shareholders, can afford to analyze these things and pass on these costs as appropriate.
Of course, the fundamental assumption here is that the government officials have effective policies to enforce, are sufficiently powerful, and can render decisions impartially. We have indeed seen the weakening of standards (e.g. effective repeal of Glass-Steagall Act). A government official may only enforce policies in place and cannot simply declare something as "harmful". Regulators require the ability to coerce industry to follow regulation, or else all the good policies in the world are meaningless. The last refers to conflicts of interest that arise from regulatory capture.
In my opinion, the Republicans have done much in all three of the categories I explained above to ensure ineffective government regulation. (As an aside, I'm all for the removal of unnecessary and overly burdensome regulations, but to say that all regulation is bad is pure dogmatism.) Ironically, their actions of ensuring bad regulation have served to reenforce their mantra of government being bad. I think there's a word for this...I believe it's called chutzpah.
Good article. Regulators have a very important role to play in any enterprise that places the lives and assets of the citizenry at risk. Self-policing only works when the markets are keenly aware of the economic consequences of failure. BP, and much of the oil industry, missed this key points and now everyone pays. Indeed, there are a few examples where industries have learned a valuable lesson and established effective self-regulation. However, this requires the industry leaders to recognize and commit to such things.
Democrat or Republican , neither side is completely innocent. It is easy to pick and choose specific incidents to "prove" any side culpable. However, it is undeniable that the Republican mantra since the 1980s has largely been "private industry good; government bad". This sophomoric dichotomy ignores the fact that both carry positives and negatives and can serve to compliment each other. For example, private industry is forced to innovate to stay competitive, which government generally does not do. On the flip side, private industry is largely set up to be concerned primarily with short-term profits, and as such may be blind to externalities and long-term consequences of actions that have net negative impacts upon society, whereas government officials, not accountable to shareholders, can afford to analyze these things and pass on these costs as appropriate.
Of course, the fundamental assumption here is that the government officials have effective policies to enforce, are sufficiently powerful, and can render decisions impartially. We have indeed seen the weakening of standards (e.g. effective repeal of Glass-Steagall Act). A government official may only enforce policies in place and cannot simply declare something as "harmful". Regulators require the ability to coerce industry to follow regulation, or else all the good policies in the world are meaningless. The last refers to conflicts of interest that arise from regulatory capture.
In my opinion, the Republicans have done much in all three of the categories I explained above to ensure ineffective government regulation. (As an aside, I'm all for the removal of unnecessary and overly burdensome regulations, but to say that all regulation is bad is pure dogmatism.) Ironically, their actions of ensuring bad regulation have served to reenforce their mantra of government being bad. I think there's a word for this...I believe it's called chutzpah.
"Environmentalists are to blame for forcing oil companies to do deep water drilling."
Not only that, they're also responsbile for forcing the US oil companies to lobby Congress to exempt them from having to instal the safety equipment required elsewhere that would have prevented the spill.
Australia overly the past coupel of decades actually represents a pretty good example of Keynesianism done right.
After a worrisome run-up of the public debt in the 70's and 80's there's been a bipartisan* push to fix our public finances.
That's why even after spending heavily on stimulus over the past two years our public debt is amongst the lowest in the OECD as a percentage of GDP.
To be honest thoguh, the commodity boom and our status as major supplier of minerals ot China helped considerably.
*Of course, in Australia, bipartisanship means pursuing essentially the same policies as your predecessors while dwenouncing them at every opportunity.
Good lord, Randy, you are really buying into the Fox News line that we can go back a DECADE and blame the Clintons for everything?
Again, look up the phrase "regulatory capture." It has happened off and on, in all administrations. Indeed, the fact that the ICC and CAB were captured by the rail and air indistries provoked the DEMOCRATS to eliminate those agencies altogether.
But the Busites entered office with regulatory capture as their top and principal aim. ALL agencies were stocked and stuffed with cronies of the oligopolies. The Mineral Management Service guys who snorted coke and whored with oilco execs weren't appointed by Clinton.
They were appointed by George W. Bush
Complete agreement on the disaster of the Neocon mindset. Their perversion of both political and economic policy has left a legacy difficult to unwind if its going to be possible at all.
I believe its time to revise and extend Keynes a bit however.
I don't mean throwing him out. The line from Smith to Keynes just needs to go the next step.
Smith recognized the problem of monopoly and concentrated influence.
Keynes understood how problems in money supply and distribution could hinder economic functioning even when there was ample capacity for production and a population ready to go to work.
I'd like to suggest that what Keynes missed was an inherent problem in credit creation... which leads to the problems here discussed (and that Adam Smith feared).
I believe you indirectly mention the problem yourself...
"bureaucrats are inherently dangerous to competition, if they are left to 'guide' an economy. They are few in numbers and hence prone to group delusion."
Actually this bias isn't just with bureaucrats, but extends to those golf buddies you mention. I know you realize this since its implicit in the post.
I'm not necessarily opposed to Central Banking or the need for universal currencies... but there's a 'groupthink' going on there that is missing some elements of the big picture.
I won't go into it here but as you know I thing the 'altruism scaling problem' is a BIG deal and deserves methodical and reasoned attention. It's a problem Smith and our Founders recognized... as did the ancient Greeks.
Its amenable to solution but all solutions will be gamed so no final one is likely.
Credit Creation and the Building of Sustainable Economic Ecologies
(something amiss with posting... it kept telling me it couldn't reach server to post so I'd retry... somehow ended up there three times! sorry!)
A couple of further thoughts:
Some important economic metrics need to be looked at. E.g. GDP, for one, is a misleading barometer of a nation's well-being at best... and at worst leads to severe distortions.
The financial services industry is a glaring example of a sector whose contribution to the national wealth is clearly mis-understood.
Civilizations are quite literally the product of countless individual and group decisions. I call this social energy.
Money is a mechanism that stores and allocates a good deal of social energy. But money is both a very imperfect store of that energy and doesn't operate within a static environment but rather a complex/chaotic one.
E.g. There's a great debate going on amongst the economic 'whiz-bangs as to whether we're headed towards catastrophic deflation or inflation... it's a fair question and I don't pretend to have the answer.
But the point is that whether people have no money at all or are walking around with it in barrels is somewhat beside the point.
Either outcome is a reflection of a social organism at war with itself. Its an organism whose internal mechanisms of motivation and incentive contain inconsistencies and conflicts which ultimately incapacitate the organism.
It a Collapse of Social Energy.
Consider this:
Corporations have record levels of cash. Yet are unwilling to lend or invest because they fear the domestic market is weak.
They are correct! They've killed their golden goose!
The (much simplified)operant model:
“If we can just keep their lizard-brains occupied those higher-functions won’t kick in and we can keep selling ‘em crap even when they don't really need it or want it!
"But wait a minute we don’t want to have to pay ‘em the wages to afford the crap. If we can pay ‘em less… we can make more!
“hmmmm… I know!!!! We’ll LEND ‘em the money!!! Problem solved!”
And here we are with a cancerous, metastasized financial services industry! Should anyone be surprised? Not if you were paying attention!
I’m not a conspiratorialist… and I don’t really happened that way.
But it happened because it’s in the narrow interest of each of those constituencies… but NOT the people as a whole… and that’s whether your a conservative OR a liberal.
It must be our American Exceptionalism that blessed us with such cleverness. Oh Lordy… bless the whiz-bangs that developed these complex and magical financial products and gerrymandering and loopholes in thousand page bills that aren’t read. Surely their bonuses and prizes are well deserved. We’re so fortunate that our best-and-brightest are looking out for us!
P.S. You think things are screwed up now? Just wait for the student loan fiasco which will hit sooner-or-later. And its not the money… so much as what it’s doing to the social contract. A nation of indentured servants with limited futures is going to get cranky.
Personal Democracy: Disruption as an Enlightenment Essential
Extinction requires only inertia.
We've reached that critical point now where...
Evolution requires tools...
Carefully thought out tools.
In the interests of clarifying my nascent ideas regarding social energy as providing a useful avenue for viewing an social organism's metabolism...
A collapse of a civilization (or revolution, etc.; and importantly this obviously refers to a human-caused collapse as opposed to say a meteor strike)...
is not actually so much a disappearance or loss of this energy so much as it is what might be called a net energy of zero or close to it.
i.e. A multitude of vectors... just so dispersed and opposed in direction as to result in little or no net capability... no resultant effective social vector.
It's important to consider that in a healthy civilization some vectors in conflict and/or opposition is essential for health... (related to criticality)...
Too dispersed? Weimar Republic... Too mono-directional: Hitler's Germany
Like Goldilocks... it's important to get the porridge to just the right temperature.
What can I say... sometimes I just get on a roll.
"Earth" keeps coming to mind...
I was considering the idiocy of many of the 'fantasy theories' that neocons use to prop up their charade.
And you know what came to mind?
The statues on Easter Island!
That's pretty much what these guys have got going...
They're the intellectual version of those damn statues.
They're sucking up all the energy while destroying the social contract and the environment... and with much the same result... a wasteland!
And, of course that Helvetian War keeps coming to mind...
I know... I'd be very unlikely to look just like that.
But you were certainly a building source of potential trouble!
I mean you "were pointing out" a building source potential trouble...
(I'm going to have to have a word with my proofreader... oh yeah, that's supposed to be me!)
Let us note that of the tens of billions of dollars of profit (not gross, but profit) taken by Big Oil over the last few years, the amount re-invested in the means to deal with a catastrophic blowout is so close to zero as to make no difference.
Their plans didn't even allow for the possibility that there might be a hurricane in the Gulf! It is so inconceivable that no-one in the industry ever heard of, let us say, Hurricane Katrina, that I propose we must be dealing with more than individual venality; the issue is in a defective design in the system itself.
The economic aristocracy's theory of "Privatize Profit Socialize Risk" should outrage Libertarians as well as not-Libertarians, but mere outrage cannot overcome the Easter Island Head effect: when the aristocracy is not constrained, the immediate and short-term gains it reaps from raping our commons overwhelms the long-term health of the entire system.
David,
If you'd notice, I was referring to an article I got from one of *your* links that said the acoustic switch had been used overseas since the early '90s. I'm not aware that you're affiliated with FoxNews. :)
It was not meant in any way as a swipe at President Clinton. I said his administration could have made it mandatory if it was important, but I'm not the one who thought it was important.
Besides that, there were plenty of Democrats in bed with BP. After all, it was a Democrat working for BP who came up with those idiotic "Beyond Petroleum" commercials with those pompous concerned citizens telling us who much they wanted a responsible oil company. The only good thing about this oil spill is that it finally shut them up. Watching FoxNews is so much more enjoyable now that they're gone. :D
On a lighter note in re the rationality of the marketplace ...
"Steven Noel Perkins, a former oil futures broker, single-handedly engineered a jump in the price of oil a year ago and cost his firm millions of dollars with a string of unauthorized trades after a weekend of heavy drinking.
Mr. Perkins had just returned from a liquor-soaked golf weekend with colleagues in June of last year when he sat down in front of his laptop at his home east of London and started to place bets on Brent crude futures, according to a report by the Financial Services Authority. He continued to drink and place bets through the night, and by the morning of June 30, Mr. Perkins had placed more than $520 million worth of trades, at one point pushing the price of oil to $73.05, an eight-month high. The trades by Mr. Perkins were the main reason the price gained about $1.65 a barrel in just over two hours in the middle of the night, according to the report.
“Mr. Perkins’s explanation for his trading on 29 and 30 June is that he was drunk,” the F.S.A. said.
Drink. Trade. Refill. Lose $10 Million.
In fact, there are oil skimmers capable of cleaning up more oil except that environmental regulations won't allow their use here.
This comment by Randy B just sort of stuck in my craw. What environmental regulations would he be talking about? It's been a conservative talking point for a couple of weeks that the Jones Act is preventing skimmers from comming from other countries, but this assertion is totally, completely, and patently false.
The world's largest skimmer, a converted Taiwanese supertanker, is in the Gulf and will begin operations soon. In addition, 25 countries and four international organizations have offered support in the form of skimming vessels, containment and fire boom, technical assistance and response solutions, among others. Only one offer has been declined.
Quit getting your "facts" from Fox.
Chris,
You need to get out more if you think that one is limited to FoxNews.
Yes, I'll concede that's abused talking point, but it's not without foundation:
www.nola.com/news/gulf-oil-spill/index.ssf/2010/06/huge_oil-skimming_ship_makes_v.html
Great post, David. I feel similarly to you in being a libertarian in some ways, but not others. It would be nice to have a name for this.
I think the key thing about markets is that though fair markets are good for those not involved in them (but who take advantage of the value they produce), and are better on average for those involved with them (in that the overall value distributed amongst all participants will be higher), there's a very strong opposing force here: any individual market participant is almost invariably better off if the market is unfair in his favour. So while there's a large group of people who have an interest in a fair market, there are a lot of market participants who are both much more deeply invested and who are strongly motivated to to avoid fairness. (This is even more true when there's an opportunity to use externalities to "suck in money from outside the market," as it were.)
Now that we have this framework for general analysis, how to deal with the problem is left as an exercise for the reader. I'm sure it's just a simple matter of application of some game theory or something like that....
Across 4,000 years of recorded history, there has been no greater enemy of open competition than collusive, wealth-centered aristocracy.
You just voted in the New Aristocracy as recently as 2008. Now you wish to speak out against it?
Your place under this new regime is not to speak out, but to be taxed and have your taxes used to correct the environment plagues of the planet.
On a lighter note in re the rationality of the marketplace ...
"Steven Noel Perkins, a former oil futures broker, single-handedly engineered a jump in the price of oil a year ago and cost his firm millions of dollars with a string of unauthorized trades after a weekend of heavy drinking.
Mr. Perkins had just returned from a liquor-soaked golf weekend with colleagues in June of last year when he sat down in front of his laptop at his home east of London and started to place bets on Brent crude futures, according to a report by the Financial Services Authority. He continued to drink and place bets through the night, and by the morning of June 30, Mr. Perkins had placed more than $520 million worth of trades, at one point pushing the price of oil to $73.05, an eight-month high. The trades by Mr. Perkins were the main reason the price gained about $1.65 a barrel in just over two hours in the middle of the night, according to the report.
“Mr. Perkins’s explanation for his trading on 29 and 30 June is that he was drunk,” the F.S.A. said.
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